Bengaluru: Infosys, the country's second-largest information technology services firm, on Friday cut its revenue growth forecast for the financial year 2026-27, warning that weaker growth in its largest market, the United States, and deflationary pressure from artificial intelligence would make the second half of the year tougher than the first.
The company said it now expected revenues to grow 1 to 2 per cent in constant currency terms, down from the 1.5 to 3 per cent it had projected three months ago. The guidance cut came alongside second-quarter results that showed a mixed picture: consolidated net profit rose 6.2 per cent to Rs 7,823 crore, while revenue from operations rose 10.7 per cent to Rs 49,244 crore, helped by the financial-services and energy and utilities businesses.
The numbers, for the July-September quarter, landed on either side of analyst expectations. Net profit missed estimates — analysts polled by Bloomberg had expected Rs 7,904 crore — while revenue came in ahead of expectations of Rs 49,108 crore. In dollar terms, revenues stood at $5.19 billion, up 1.3 per cent year on year, while constant-currency revenue growth was 1.5 per cent, just ahead of rival Wipro's 0.6 per cent.
The Bengaluru-based company grew at its slowest pace in at least six quarters.
"It was a soft quarter for us. The volumes were softer and in AI we are also seeing compression. We are only taking up contracts that meet our economic guidelines," Chief Executive Officer and Managing Director Salil Parekh said, referring to the pressure that artificial intelligence is exerting on traditional pricing and deal structures in the IT services industry.
Chief Financial Officer Jayesh Sanghrajka was equally candid about the outlook. "We expect even more uncertainty. Our Q2 has been softer, and our volume continues to remain softer," he said at the post-earnings press conference.
"We have also seen pricing pressure on the back of competitive intensity and higher demand on productivity. So all that is baked in our revised guidance as we look forward." Sanghrajka added that the company was seeing softness in sectors such as retail, which declined 7.7 per cent year on year, and hi-tech, which declined 17.3 per cent, where discretionary spending was lower than expected.
The market reaction was sharp. Infosys' American depositary receipts fell more than 6 per cent in pre-market trading on Friday, as investors weighed the guidance cut against the revenue beat. The cut signals a more cautious outlook amid uncertainty over technology spending and the impact of artificial intelligence on the traditional IT services business.
There were, however, points of strength in the quarter. Large deal wins rose to $5.2 billion from $3.1 billion in the corresponding quarter last year, providing some support to the business outlook. About 62 per cent of the deal value represented net new business, and the wins included a mega deal exceeding $2 billion.
AI-related revenue grew 29 per cent sequentially and accounted for 10.5 per cent of overall revenue, though that growth has yet to translate into a stronger overall revenue outlook as clients remain cautious about discretionary technology spending and increasingly focus on productivity gains.
Operating margin remained stable at 21 per cent for the quarter, and the company retained its operating margin guidance of 20 to 22 per cent for FY27, indicating that profitability remains a priority even as revenue growth moderates. "We delivered operating margins of 21.0 per cent in Q2 amidst heightened volatility. Focus on cost and operational efficiency measures while making the required investments, have led to stable margins," Sanghrajka said.
The company declared an interim dividend of Rs 26 per share, with November 3, 2026, set as the record date and November 11, 2026, as the payout date. Total employee headcount stood at 332,542 as of September 30, 2026, compared with 328,062 in the previous quarter. Last-twelve-month voluntary attrition eased to 12.7 per cent from 13 per cent in the first quarter and 14.3 per cent a year earlier, while women accounted for 39.8 per cent of the workforce.
Parekh also addressed questions on H-1B visa costs, a subject of recurring attention for Indian IT firms with large US operations. He said the majority of the company's US employees were local hires, adding that steps taken several years ago had brought the company to this position. "We feel we have a good ratio in terms of bringing people on and in terms of cost efficiency. In the recent quarters, we have also seen our ratios change between on-site and offshore," he said.
Infosys' commentary places it squarely within an industry-wide pattern. Across the global IT services sector, companies have reported that the adoption of generative AI is changing client spending patterns, pricing models and demand for traditional technology services. Clients are asking vendors to deliver more for less — higher productivity, lower prices — and vendors are responding by automating delivery while competing harder for new deals.
The result is a market in which winning work increasingly requires accepting tighter economics, exactly the dynamic Parekh described when he said Infosys would only take up contracts that met its economic guidelines.
The company's relative performance also tells a story. Its 1.5 per cent constant-currency growth for the quarter was, by the slimmest of margins, ahead of Wipro's 0.6 per cent — a sign that Infosys is holding its own against domestic peers even as the overall market softens. But the fact that the country's second-largest IT services company grew at its slowest pace in at least six quarters underlines how broad the slowdown has become.
Discretionary spending, the lifeblood of large transformation deals, remains the segment clients are most willing to defer.
The guidance reduction comes amid broader concerns about the global IT services industry, where the adoption of generative AI is changing client spending patterns, pricing models and demand for traditional technology services.
Infosys' commentary — softer volumes, compression in AI contracts, and clients demanding higher productivity — echoes what peers have been signalling: that enterprise technology budgets remain under scrutiny and that the transition to AI-led services is compressing the economics of legacy work.
For investors, the quarter leaves a familiar tension. The deal pipeline, with $5.2 billion in large wins, and the rapid growth of AI-led revenue suggest demand is present and shifting toward new kinds of work. But the lowered full-year guidance makes clear that conversion of that demand into recognised revenue is slowing, and that the second half of the year is expected to be more difficult than the first.
What happens next will depend on whether discretionary technology spending recovers and whether the productivity gains clients are demanding can be met without further erosion of pricing.
(Reporting based on Business Standard, The Economic Times and Deccan Herald.)