Infosys FY27 guidance cut as AI services and deal wins support outlook

Investment View and Target Price

In its July 24, 2026 result update, Anand Rathi Research retained its BUY recommendation on Infosys after a muted Q1 FY27 and a reduction in FY27 constant-currency revenue-growth guidance. The broker believes the revised guidance is conservative, while continued expansion in AI services, robust large-deal activity and maintained operating-margin guidance support the investment case.

Anand Rathi set a target price of Rs 1,270, implying about 21.2 per cent upside from the report’s CMP of Rs 1,047.

Q1 FY27 Performance

Infosys reported Q1 FY27 revenue of US dollar 5,082 million, up 1.0 per cent quarter-on-quarter in constant currency but down 0.1 per cent organically. Reported rupee revenue was Rs 4,82,110 million, up 3.9 per cent quarter-on-quarter and 14.0 per cent year-on-year.

Anand Rathi attributed the soft quarter to a roughly 50-basis-point impact from termination of an EURS programme late in the quarter, weaker-than-planned volumes and lower price realisation. Client productivity demands and competitive intensity contributed to the pricing pressure.

FY27 Growth Guidance and Outlook

Management reduced FY27 constant-currency revenue-growth guidance to 1.5-3.0 per cent from 1.5-3.5 per cent. The guidance implies 0.9 per cent compound quarterly growth from Q2 to Q4 FY27, including approximately 170 basis points of inorganic contribution.

Anand Rathi calculates the implied organic-growth midpoint at 0.55 per cent, compared with about 2.25 per cent in the earlier guidance, a reduction of roughly 170 basis points. The broker says the downgrade reflects several factors:

• A more than 100-basis-point impact from European manufacturing clients, versus the previous assumption of 75-100 basis points.
• A 75-100-basis-point revenue headwind from a faster onsite-to-offshore mix shift.
• Softer Q1 volumes and productivity-led scope reductions.
• Pricing pressure expected to continue into H2.

Management acknowledged that it lowered the macro assumptions embedded in the upper end of its guidance range. Anand Rathi believes the revised guidance is conservative.

AI Services and Large Deals

AI services, excluding AI-augmented work, reached 8.2 per cent of revenue in Q1 FY27, versus 5.5 per cent in Q3 FY26. This represents a 22 per cent compound quarterly growth rate from Q3 to Q1.

Infosys is seeing traction in process AI, AI strategy and engineering, and the data layer within a US dollar 300 billion total addressable market. The company plans to add 6,000 frontier engineers over the next few years. Its Topaz Fabric operates across 15 foundation models as a client-side platform intended to preserve data sovereignty and optimise token costs.

Large-deal indicators remained healthy. Last-twelve-month large-deal total contract value was US dollar 14.7 billion, up 30.1 per cent year-on-year. Q1 FY27 large-deal TCV was US dollar 3.6 billion, while net new deals accounted for 61 per cent, up 5.1 per cent year-on-year.

The Infosys board appointed Ashiss Kumar Dash, a 31-year company veteran who leads the EURS vertical, representing 13.4 per cent of revenue mix, as CEO-designate. He is scheduled to succeed as Managing Director and Chief Executive Officer on April 1, 2027.

Margins and Workforce

Q1 FY27 EBIT margin improved 10 basis points quarter-on-quarter to 21.1 per cent. Management maintained FY27 operating-margin guidance of 20-22 per cent.

Margin support included roughly 70 basis points from rupee depreciation, 20 basis points from Project Maximus, 20 basis points from reversal of Q4 acquisition-amortisation costs and a net 10-basis-point one-time cost benefit. These positives were partly offset by 50 basis points of AI sales and marketing investment and 40 basis points from one-off revenue loss.

Net headcount fell by 532, although acquisitions added around 2,000 employees, implying an organic reduction of around 2,500. Infosys added 4,000 freshers in Q1 against its FY27 target to hire 20,000.

Estimates and Valuation

Anand Rathi reduced FY27E and FY28E US dollar revenue estimates by 1.0 per cent and 1.2 per cent, respectively, and adjusted PAT estimates by 1.3 per cent and 0.3 per cent.

The broker forecasts FY26-FY28E adjusted EPS CAGR of 5.4 per cent, or 7.8 per cent after harmonising the tax rate across the period. At CMP, Anand Rathi values Infosys at FY27E and FY28E price-to-earnings multiples of 13.5 times and 12.6 times, respectively.

Key Risks

• Faster-than-expected AI-led revenue compression during contract renewals.
• Increased pricing competition.
• Worsening macroeconomic conditions.
• Delays in closing the Versent acquisition.