Infosys Raises FY26 Revenue Guidance to 3.5% on AI Strength

Introduction

Infosys Ltd, India's second-largest IT services provider, has raised its revenue growth guidance for the fiscal year 2025-26, signaling growing confidence in its business pipeline despite a challenging global economic environment. The company now projects constant currency revenue growth between 3% and 3.5%, an upward revision from its earlier forecast of 2% to 3%. This adjustment follows a solid performance in the third quarter, driven by significant deal wins and increasing client adoption of its artificial intelligence platforms.

Strong Q3 Performance Underpins Confidence

The decision to lift the forecast is supported by a robust performance in the quarter ending December 31, 2025. Infosys reported a sequential revenue growth of 0.6% and secured large deals with a total contract value (TCV) of $1.8 billion. The company also demonstrated strong financial health by generating an adjusted free cash flow of $165 million during what is typically a seasonally weaker quarter for the IT industry. Chief Financial Officer Jayesh Sanghrajka highlighted the company's broad-based performance and commitment to its capital allocation policy, which included the completion of a Rs 18,000 crore share buyback and the payout of an interim dividend.

AI as a Key Growth Catalyst

Management has attributed a significant portion of its recent success and optimistic outlook to its investments in artificial intelligence. CEO and MD Salil Parekh stated that the company's differentiated offerings in enterprise AI, particularly through its Infosys Topaz platform, are consistently helping it gain market share. According to Parekh, clients increasingly see Infosys as a strategic AI partner capable of unlocking business potential and enhancing value. This shift from proof-of-concept projects to full-scale AI implementation is a critical driver for the revised guidance. The company remains committed to reskilling its workforce to operate effectively in an AI-augmented business landscape.

Detailed Financial Metrics

While the outlook is positive, a closer look at the Q3 FY26 financials reveals a mixed picture. On a year-on-year basis, net profit declined by 2.2%, although revenue increased by 8.9%. The operating margin for the quarter stood at 18.4%, a contraction from 21.3% in the same quarter of the previous year. This indicates ongoing cost pressures, even as the company secures new business. In dollar terms, revenue reached $1.099 billion, marking a 3.2% year-on-year growth. The company has maintained its operating margin guidance for the full fiscal year at a stable 20% to 22%, suggesting confidence in its ability to manage costs and maintain profitability.

Industry Landscape and Peer Outlook

Infosys's guidance revision comes at a time when the broader IT sector is navigating tepid demand due to soft discretionary spending from clients. The move aligns with trends seen among its peers. While industry leader Tata Consultancy Services (TCS) does not provide specific revenue guidance, HCLTech has guided for revenue growth in the range of 4% to 4.5% for the fourth quarter of FY26. Infosys's upward revision, therefore, provides a positive signal for the sector, suggesting that demand, particularly in high-growth areas like AI, is beginning to stabilize and accelerate.

Operational Stability and Workforce Trends

Operational metrics from the quarter point to a stable and growing business. The company's active client base grew to 1,949 as of December 31, 2025, up from 1,876 a year earlier. Total headcount also saw a 4.22% year-on-year increase, reaching 337,034 employees. A key positive indicator is the continued decline in the attrition rate, which fell to 12.3% over the last twelve months, compared to 13.7% in the previous year. This improvement in employee retention suggests greater operational stability and reduced costs associated with hiring and training.

Market and Analyst Sentiment

The market has been watching Infosys closely, and the sentiment leading up to the announcement was largely positive. Among 51 analysts tracking the stock, 37 had recommended a 'Buy' rating, while 11 suggested 'Hold' and only three advised a 'Sell'. The company's stock closed 0.62% higher at ₹1,608.90 on the day before the results were released, reflecting investor optimism. The upgraded guidance, coupled with the stable margin forecast, is expected to be received favorably by investors and could positively influence sentiment across the Indian IT sector.

Conclusion

Infosys's decision to raise its FY26 revenue guidance reflects a clear confidence in its strategic direction, particularly its focus on enterprise AI. While margin pressures and macroeconomic uncertainties persist, the company's strong deal pipeline and improving operational metrics provide a solid foundation for future growth. For investors and the market, this upward revision is a welcome sign of resilience and a potential inflection point for client spending in the IT services industry.