Infosys faces weak quarter and FY27 guidance cut despite strong large deals

Investment View and Valuation

Emkay Research's October 24, 2026 result update on Infosys retains a BUY recommendation and a target price of Rs 1,300, despite a weak 2Q FY27 operating performance and a reduction in FY27 constant-currency growth guidance. Emkay considers the valuation undemanding and values Infosys at 16x September 2028E EPS.

The target price is unchanged, while the broker has cut FY27E to FY29E EPS estimates by 0.8 per cent to 1.5 per cent to reflect slower revenue growth and margin pressures.

2Q FY27 Financial Performance

Infosys reported 2Q FY27 revenue of US$5,145 million, up 1.2 per cent QoQ in both US dollar and constant-currency terms. Revenue was below Emkay's US$5,159 million estimate, while EBIT of Rs 103,300 million was 2.7 per cent below the broker's forecast.

Demand and Margin Pressures

The weak quarter reflected softer volumes, lower-than-expected price increases amid competitive intensity, and slower discretionary spending in the Retail and Hi-Tech verticals. Retail was affected by lower third-party revenue and client ramp-downs amid soft consumer demand. Communications continued to face AI-driven pricing pressure, while Hi-Tech faced budget cuts at some large clients.

These demand, pricing and margin factors remain important constraints on the near-term earnings outlook.

Large Deals and AI Revenue

A positive operational indicator was large-deal total contract value of US$5.2 billion in 2Q FY27, of which 62 per cent was net new. This included two financial-services mega deals: a more than US$2 billion seven-year net-new contract and a US$1 billion renewal.

Management expects transition of the net-new mega deal to begin in the latter half of 4Q FY27 and to contribute more than 1 per cent to FY28 growth. Management also said the large-deal pipeline has expanded significantly and contains additional mega deals with margin profiles comparable with prior deals. AI revenue rose 29 per cent sequentially and represented 10.5 per cent of 2Q revenue.

FY27 Guidance and Second-Half Outlook

Management lowered FY27 revenue-growth guidance to 1 per cent to 2 per cent in constant currency from 1.5 per cent to 3.0 per cent. This implies a 3Q to 4Q compound quarterly growth range of negative 1.0 per cent to positive 0.3 per cent. The revision reflects a softer first half and selective discretionary spending, especially in Hi-Tech and Retail.

Management retained FY27 EBIT margin guidance of 20 per cent to 22 per cent. Emkay expects wage hikes in October 2026 and January 2027, softer seasonality, AI-related productivity pass-throughs and large-deal ramp-ups to weigh on second-half margins, partly offset by Project Maximus.

Management views AI-led deflation in the legacy book as finite and AI growth as secular.

Emkay Estimates

Following the results and outlook revision, Emkay's FY27E, FY28E and FY29E revenue estimates are Rs 1,946,547 million, Rs 1,991,836 million and Rs 2,094,067 million, respectively. Its EPS estimates are Rs 76.4, Rs 79.0 and Rs 84.0. The broker forecasts FY27E EBIT margin of 20.9 per cent, followed by 21.0 per cent in FY28E and FY29E.