Infosys Q3 preview: Five signals to watch out for in results of India's IT bellwether Wednesday

BENGALURU: Infosys Ltd’s Salil Parekh completes eight years as chief executive this month, making him the second-longest serving chief executive at the Bengaluru-based company after co-founder N.R. Narayana Murthy, who led the firm for 21 years.

Parekh’s tenure has spanned multiple inflexion points—from the shift to digital services and the disruption caused by the Covid-19 pandemic, to a prolonged slowdown in companies awarding billion-dollar technology deals to IT outsourcers. As the company heads into its December-quarter (Q3FY26) earnings, however, the most consequential test may be how it navigates the rise of automation and generative artificial intelligence (GenAI).

Two years after the launch of ChatGPT upended enterprise technology spending, questions are resurfacing about how Infosys plans to adapt its business model to an AI-driven world. While the company’s public commentary has struck a conciliatory tone on the impact of automation, internally, Parekh has been reworking Infosys’s AI strategy.

The focus is no longer limited to passing on AI-led productivity gains to clients as incremental benefits. Senior executives have been directed to make the company’s AI offerings enterprise-grade, with an emphasis on solving use cases and handling end-to-end tasks through its Topaz platform.

“A key concern for our Topaz offering was that clients were not getting much from them except productivity gains. Clients would prefer bagging Microsoft’s Co-pilot because they could get the entire Microsoft product line with it," said an Infosys executive in the know.

Management has taken note of this feedback and is recalibrating its flagship AI offerings to move beyond productivity enhancement. The shift is visible in its recent partnership with Cognition, under which Infosys plans to deploy AI agents capable of handling end-to-end software engineering work for clients, rather than automating only discrete tasks.

This strategic rethink comes against the backdrop of Parekh’s defining bet on mega deals—contracts valued at over a billion dollars—to secure long-term revenue visibility and outpace peers. Under his leadership, Infosys has won eight such deals, more than any of its rivals in the same period. The company also signed its largest-ever contract in December 2020, an eight-year, $3.2 billion deal with German auto major Daimler.

That deal has since run into challenges, resulting in a revenue dent of at least $150 million a year. As Infosys prepares to announce its third-quarter earnings on 14 December, investors will be watching closely to assess how the company plans to drive growth in the AI era.

In the September quarter (Q2FY26), Infosys reported a 2.7% sequential jump in revenue to $5.08 billion, and a net profit of $839 million. Operating margin jumped 20 basis points to 21%, as demand remained tepid, and management narrowed its FY26 full-year revenue growth guidance to 2-3%.

Mint examines five key talking points.

Demand signals

India’s two largest IT services firms, Tata Consultancy Services (TCS) and HCL Technologies Ltd, recently offered diverging assessments of demand conditions. While TCS said discretionary technology spending is expected to improve, HCLTech struck a more cautious note, pointing to continued weakness. Geopolitical tensions in West Asia and muted demand for IT services could further weigh on sentiment.

Against this backdrop, Infosys’s demand commentary will be closely tracked.

Revenue levers

In a subdued demand environment, Infosys’s growth will hinge on two key developments. The first is the ramp-up of its $1.6 billion mega deal with UK-based healthcare provider NHS, signed in October last year. The second is the loss of revenue from Daimler, as reported by Mint on 12 January, which could offset gains from the NHS contract.

The company’s revenue outlook will therefore be closely scrutinised, although at least one brokerage expects improvement if US macroeconomic conditions stabilize.

“Infosys has the highest exposure among its Indian IT peers to the US market which was impacted by uncertainty and volatility in 2025. Going forward, we expect macro-related uncertainty in the US to wane, which should improve decisions by US Inc. for IT budget expansions and discretionary spending," said HSBC analysts Yogesh Aggarwal, Prateek Maheshwari, and Sagar Desai, in a note dated 1 January.

Infosys derives more than half of its revenue from the US.

Margin pressures

A key concern for IT outsourcers in the third quarter is the one-time impact of India’s new labour codes. TCS and HCLTech have together earmarked $350 million in one-time expenses related to gratuity and provident fund contributions.

While favourable currency movements had raised expectations of margin expansion, one-time costs and the possibility of wage hikes could weigh on profitability. Management commentary on margin trajectory will therefore be critical.

AI monetization

Infosys has reiterated its stance of deploying AI agents to augment human tasks. Its partnership with Cognition marks a shift towards billing AI software engineers for handling complete, end-to-end work.

Unlike peers such as TCS and HCLTech, Infosys has so far refrained from disclosing AI revenue metrics. Investors will look for clarity on the company’s AI strategy, including the cost of deploying these agents, potential revenue upside, and billing mechanisms.

Hiring strategy

Infosys has guided for the hiring of 20,000 freshers this fiscal, up from 15,000 last year. However, management had indicated in an interview with BMO Capital Markets last year that fresher requirements would decline over time.

With AI agents increasingly automating entry-level tasks such as coding, and with both TCS and HCLTech cutting headcount in the third quarter, Infosys’s hiring plans will be closely watched.