IT Stocks Rally Over 3% as Infosys Raises FY26 Guidance

Introduction: IT Sector Gains Momentum

The Indian stock market witnessed a strong rally in information technology stocks on Friday, January 16, 2026, driven by renewed investor optimism. The Nifty IT index surged 3.44% to close at 39,122.20, marking a significant rebound from the previous session's decline. The primary catalyst for this upward movement was an upgraded revenue forecast from IT bellwether Infosys, which overshadowed the company's weaker-than-expected quarterly profit figures. The positive sentiment spread across the sector, leading to broad-based buying in major technology companies and boosting the broader market indices.

Infosys's Mixed Q3 FY26 Performance

Infosys announced its financial results for the third quarter ending December 31, 2025, presenting a mixed picture. The company reported a consolidated net profit of ₹6,654 crore, a sequential decline of 9.6% and a year-on-year drop of 2.2%. This dip in profitability was largely attributed to a one-time financial impact related to new labour regulations in India.

On the revenue front, the performance was more encouraging. Revenue from operations grew 2.22% quarter-on-quarter to ₹45,479 crore. On a year-on-year basis, revenue increased by a healthy 8.9%. In dollar terms, revenue stood at $1,099 million, up 3.2% from the corresponding quarter last year. However, operating margins came under pressure, easing to 18.4% from 21.3% a year ago, reflecting rising costs.

The Upgraded Guidance That Spurred the Rally

Despite the dip in quarterly profit, the key driver for the market's positive reaction was Infosys's revised outlook for the full fiscal year 2026. The company raised its constant currency revenue growth forecast to a range of 3.0-3.5%, up from the earlier projection of 2-3%. This upward revision was interpreted by investors as a strong signal of improving demand and a potentially stabilizing environment for the IT services industry, which has faced global headwinds. The company maintained its operating margin guidance at 20-22% for the fiscal year, indicating confidence in managing profitability moving forward.

Impact of New Labour Codes on Profitability

A significant factor affecting Infosys's Q3 bottom line was the implementation of India's new Labour Codes, which were notified on November 21, 2025. These codes consolidate 29 existing labour laws and have led to changes in how companies account for employee liabilities, particularly for gratuity and leave encashment. Infosys recorded a one-time impact of $143 million, or approximately ₹1,289 crore, in its consolidated statement. This charge was the primary reason for the sharp sequential decline in net profit and operating profit.

A Broad-Based Rally Across the IT Sector

The positive guidance from Infosys had a ripple effect across the entire IT pack. Investors engaged in widespread buying, lifting shares of nearly all major technology firms. Infosys itself was a top gainer, with its stock jumping 5.61%. Other notable performers included LTIMindtree, which gained 5.55%, and Tech Mahindra, which advanced 4.98%.

This synchronized rally demonstrated that the market is placing more weight on future outlook and demand signals rather than on past quarterly performance, especially when results are impacted by one-off expenses.

Analyst Commentary and Market Outlook

The upgraded forecast from Infosys prompted positive reactions from several brokerage firms. Analysts at Nomura, Elara Capital, and Emkay Global maintained their 'Buy' or 'Accumulate' ratings on the stock, with some raising their target prices. Nomura reiterated a 'Buy' rating with a target of ₹1,810, while Emkay Global recommended a 'Buy' with a target of ₹1,750. The strong performance of Infosys's American Depository Receipts (ADRs) in overseas trading also signaled strong buying interest ahead of the domestic market opening.

Navigating Sector Headwinds

The rally provides a much-needed boost to the IT sector, which has been grappling with significant challenges over the past year. These include cautious spending from clients in key markets like North America and Europe, delays in deal closures, and a slowdown in discretionary technology projects. The improved guidance from a sector leader like Infosys suggests that the worst may be over and that demand could be bottoming out. However, the broader recovery will still depend on global macroeconomic stability and a sustained pickup in client spending on digital transformation and AI-led initiatives.

Conclusion

Friday's trading session highlighted the market's forward-looking nature, as investors cheered Infosys's optimistic revenue guidance for FY26 while looking past a profit decline caused by a one-time charge. The broad-based rally across the IT sector indicates a significant improvement in sentiment. While the industry still faces underlying global challenges, the positive outlook from a bellwether company provides a strong indication that demand conditions may be improving. Investors will now closely watch the upcoming results and commentary from other major IT firms to see if this optimism is sustained across the sector.