Infosys Q3 beats, guidance up. Is this the long-awaited turnaround?

The improvement was led by growth in communications, manufacturing, and financial services verticals. Large deal wins were strong. Total contract value in Q3 rose to $4.85 billion from $3.1 billion in Q2, with a net new deal component at around 57%.

Infosys Ltd delivered sequential constant currency (CC) revenue growth of 0.6% in the December quarter (Q3FY26), beating the consensus estimate of 0.3%, despite seasonality and a drop in third-party revenue.

Infosys Ltd delivered sequential constant currency (CC) revenue growth of 0.6% in the December quarter (Q3FY26), beating the consensus estimate of 0.3%, despite seasonality and a drop in third-party revenue.

The improvement was led by growth in communications, manufacturing, and financial services verticals. Large deal wins were strong. Total contract value in Q3 rose to $4.85 billion from $3.1 billion in Q2, with a net new deal component at around 57%.

Among the significant large deals was a $1.6 billion deal with the National Health Service in the UK. It bagged 26 large deals in Q3 (versus 23 deals in Q2). Strong deal wins aid medium-term revenue visibility. Unsurprisingly, Infosys raised FY26 year-on-year CC growth guidance from 2-3% to 3-3.5%. This excludes any revenue from the joint venture with Telstra. The lower end of the revised band assumes elevated levels of macro uncertainty, and the higher end assumes some macro improvement, the management said.

In reaction, Infosys’s American Depository Receipts rose 10% in New York on 14 January. Indian stock exchanges were closed on 15 January due to the Municipal Corporation Elections in Maharashtra.

AI momentum

The ask rate for the top-end of guidance in Q4FY26 is now flat versus earlier expectations of 1% decline, said Motilal Oswal Financial Services. The exit rate for Q4 will be crucial in setting the base for the FY27 revenue trajectory. “Infosys’s guidance upgrade implies 5.4% on-year CC growth in Q4. We believe FY27E growth rates could improve to 6%+ on-year in organic CC terms," added Motilal Oswal.

The management highlighted strong AI momentum with 4,600-plus AI projects. It sees six value pools of opportunity in AI services: AI engineering services; data for AI; agents for operations; AI software development and legacy modernization; AI deployed in physical devices; and AI trust and risk services. AI adoption is now embedded across most service offerings and is not deflationary at the company level, the management said.

Last week, Infosys announced a strategic collaboration with Cognition to deploy Devin, its AI software engineer, across its internal engineering teams and global client engagements.

Based on deal wins and AI partnerships, Infosys expects revenue growth acceleration in BFSI, energy, utilities, resources, and services verticals in FY27. However, the outlook for retail and CPG remains cautious amid tariff and geopolitical uncertainty. Manufacturing discretionary spending also remains under pressure.

Infosys has seen some earnings upgrades as it is poised to benefit from enterprise-wide AI spending, given its discretionary heavy services offerings mix. “We raise our FY26-28 revenue estimates by 1% and expect Infosys to deliver ~3%/5% CC revenue growth in FY26/27," said a Jefferies India report dated 14 January.

Earnings before interest and tax margins, adjusted for new labour code provisions, rose 20 basis points sequentially to 21.2%, aided by foreign exchange tailwinds and Project Maximus. Infosys has maintained its FY26 margin guidance of 20-22%.

Stumbling blocks

On the flipside, one of the company’s top three clients, Daimler, seeks new suppliers for software and equipment services, and that can be a risk. The Infosys management has indicated that the contract remains in place until December. The potential loss of business from Daimler could present a 1.5% revenue headwind over FY27-28E, estimates Motilal. Here, revival in short-cycle deals could help Infosys compensate for the loss to some extent.

Meanwhile, Infosys stock declined 13% in 2025 amid muted discretionary technology spending. It now trades at a FY27 price-to-earnings multiple of 22x, which is largely in line with its historical average, as per Bloomberg consensus.