Infosys Delivers Strong Q3 Performance, Upgrades Growth Outlook
Infosys Ltd has posted impressive results for the December quarter, exceeding market expectations. The company reported sequential constant currency revenue growth of 0.6% in Q3FY26. This performance beat the consensus estimate of 0.3% growth. The achievement comes despite seasonal challenges and a decline in third-party revenue.
Key Drivers Behind the Growth
The improvement in revenue was primarily driven by growth in several key verticals. Communications, manufacturing, and financial services showed strong performance. Large deal wins played a crucial role in boosting the company's prospects.
Total contract value surged to $4.85 billion in Q3, up from $3.1 billion in the previous quarter. The net new deal component stood at approximately 57%. Infosys secured 26 large deals during this period, compared to 23 deals in Q2.
One notable deal was a $1.6 billion contract with the National Health Service in the UK. These strong deal wins provide enhanced visibility for medium-term revenue streams.
Revised Guidance and Market Reaction
In response to the robust performance, Infosys has raised its FY26 growth guidance. The company now expects year-on-year constant currency growth of 3-3.5%, up from the previous range of 2-3%. This guidance excludes revenue from the joint venture with Telstra.
Management explained that the lower end of the revised band accounts for ongoing macroeconomic uncertainty. The higher end assumes some improvement in global economic conditions.
Following the announcement, Infosys's American Depository Receipts jumped 10% in New York trading on January 14. Indian stock markets were closed on January 15 due to municipal elections in Maharashtra.
Artificial Intelligence Momentum Accelerates
Infosys management highlighted significant progress in artificial intelligence initiatives. The company now has over 4,600 AI projects underway. They identified six key value pools for AI services.
These include AI engineering services, data for AI, agents for operations, AI software development, AI in physical devices, and AI trust services. AI adoption is now integrated across most service offerings.
Management emphasized that AI is not deflationary at the company level. Last week, Infosys announced a strategic collaboration with Cognition to deploy Devin, an AI software engineer, across its teams and client engagements.
Analyst Upgrades and Future Projections
Motilal Oswal Financial Services noted that the ask rate for Q4FY26 is now flat versus earlier expectations of a 1% decline. The exit rate for Q4 will be crucial for setting the FY27 revenue trajectory.
Analysts believe Infosys could achieve over 6% year-on-year growth in organic constant currency terms for FY27. Jefferies India raised its revenue estimates for FY26-28 by 1%, expecting approximately 3% growth in FY26 and 5% in FY27.
Earnings before interest and tax margins, adjusted for new labor code provisions, increased by 20 basis points sequentially to 21.2%. This improvement was supported by foreign exchange tailwinds and Project Maximus. Infosys maintains its FY26 margin guidance of 20-22%.
Potential Challenges and Risks
Despite the positive results, Infosys faces some significant challenges. One of its top three clients, Daimler, is seeking new suppliers for software and equipment services. This development poses a potential risk to future revenue.
Infosys management has confirmed that the current contract with Daimler remains in place until December. However, analysts estimate that losing this business could create a 1.5% revenue headwind over FY27-28.
Motilal Oswal suggests that revival in short-cycle deals could help offset some of this potential loss. The company remains cautious about retail and consumer packaged goods segments due to tariff and geopolitical uncertainties.
Stock Performance and Valuation
Infosys stock declined 13% during 2025 amid muted discretionary technology spending. The stock currently trades at a FY27 price-to-earnings multiple of 22 times earnings.
This valuation is largely in line with the company's historical average, according to Bloomberg consensus data. The market will closely watch whether Infosys can sustain its current momentum amid evolving market conditions.
Based on recent deal wins and AI partnerships, Infosys expects accelerated revenue growth in several verticals for FY27. These include banking, financial services, insurance, energy, utilities, and resources sectors.
The company's performance in the coming quarters will determine if this represents the long-awaited turnaround that investors have been anticipating.
