Infosys Outlook Lifts IT Sector; Nifty IT Index Jumps 3%

Introduction

Indian IT stocks experienced a significant rally on Friday, January 16, 2026, driven by renewed investor optimism following a positive outlook from sector bellwether Infosys. The Nifty IT index emerged as the top sectoral gainer, climbing 3.44% to close at 39,122.20. The surge was primarily fueled by Infosys upgrading its revenue growth forecast for the fiscal year 2026, a move that overshadowed the company's sequential decline in quarterly profit and signaled confidence in the demand environment.

Infosys Q3 FY26 Performance

For the third quarter ending December 31, 2025, Infosys reported a consolidated net profit of ₹6,654 crore, marking a 9.6% decrease from the previous quarter and a 2.2% decline year-on-year. This drop in profitability was attributed to a one-time charge of ₹1,289 crore ($143 million) related to the implementation of India's new Labour Codes. These codes, which consolidate 29 existing labour laws, resulted in higher liabilities for gratuity and employee leave, impacting the company's bottom line for the quarter.

Despite the profit dip, revenue from operations showed steady growth. The company posted revenues of ₹45,479 crore, an increase of 2.22% quarter-on-quarter and 8.9% year-on-year. In constant currency terms, revenue grew 1.7% year-on-year. The company's operating margin for the quarter stood at 18.4%, a contraction from 21.3% in the same period last year, reflecting the increased employee-related costs.

Upgraded Guidance Sparks Market Rally

The key catalyst for the market's positive reaction was Infosys's decision to raise its revenue growth guidance for FY26. The company now expects its constant currency revenue to grow between 3.0% and 3.5%, an upward revision from the earlier forecast of 2-3%. However, the company maintained its operating margin guidance for the fiscal year at 20-22%. This improved outlook was interpreted by investors as a signal of stabilizing demand in key overseas markets and management's confidence in securing new business, particularly in high-growth areas like artificial intelligence.

Broad-Based Gains Across the IT Sector

The positive sentiment from Infosys spread across the entire IT pack, leading to widespread buying in technology stocks. Infosys itself was a top gainer, with its shares jumping 5.61%. Other major IT firms also recorded substantial gains, reflecting the sector-wide optimism.

Analyst Commentary and Sector Outlook

Market analysts viewed the development as a significant sentiment booster for a sector that underperformed in 2025. Harshal Dasani, Business Head at INVasset PMS, noted that Infosys raising its guidance at a time when the market was questioning the durability of the IT cycle served as a crucial "demand inflection signal." He added that while the move could trigger short-covering, a sustained market breakout would require earnings support from other sectors like financials and industrials.

Brokerages also responded positively. Nomura maintained its 'Buy' rating on Infosys, positioning it as a top pick among large-cap IT firms. Jefferies also reiterated a 'Buy' rating, raising its revenue estimates for the company. The consensus among analysts is that while near-term global uncertainties may keep overall growth muted, the strong deal pipeline and investments in AI are likely to support business momentum in the coming quarters.

The Road Ahead

The strong performance of the IT index, led by Infosys, provides a positive start to the earnings season for the sector. Investor focus will now shift to the upcoming results of other major players like Wipro and Tech Mahindra to see if the optimism is sustained. The ability of IT companies to navigate margin pressures from rising costs while converting their deal pipelines into revenue will be critical. While the guidance upgrade from Infosys is a clear positive, the sustainability of this momentum will depend on aggregate earnings visibility and stable global macroeconomic conditions.

Conclusion

Infosys's third-quarter results and revised guidance have provided a much-needed tailwind for the Indian IT sector. By looking past the one-time impact on profits and focusing on the positive revenue outlook, investors have signaled their confidence in the industry's resilience. The broad-based rally on January 16 indicates that a potential recovery may be underway, though sustained performance will be contingent on continued deal execution and a stable global economic environment.