Infosys Q3 Results: Profit Dips But FY26 Guidance Upgrade Sparks 8% ADR Surge

Introduction: Guidance Upgrade Overshadows Profit Dip

Infosys Ltd., India's second-largest IT services company, announced its third-quarter results for fiscal year 2026 on Wednesday, presenting a mixed but ultimately optimistic picture for investors. While consolidated net profit saw a sequential decline due to a one-time provision, the company's decision to raise its full-year revenue guidance fueled strong positive sentiment. This forward-looking confidence triggered a significant rally in its American Depository Receipts (ADRs) on the New York Stock Exchange, which surged by over 8% in response to the news.

Detailed Q3 Financial Performance

For the quarter ending December 31, 2025, Infosys reported a consolidated revenue of ₹45,479 crore, a 2.2% increase from the preceding quarter and an 8.9% rise year-on-year. This performance surpassed analyst estimates, indicating steady business momentum. However, consolidated net profit fell by 9.6% sequentially to ₹6,654 crore. The company clarified that this decline was primarily due to a one-time provision of ₹1,289 crore made to comply with new government labour codes. Without this exceptional item, the profit figures would have painted a different picture. The company's EBIT (Earnings Before Interest and Taxes) stood at ₹9,479 crore, up 1.3% sequentially, with an EBIT margin of 20.8% for the quarter.

Upward Revision in FY26 Guidance

The most significant highlight of the announcement was the upward revision of Infosys's revenue guidance for fiscal 2026. The company now projects revenue growth to be in the range of 3.0% to 3.5% in constant currency terms, an increase from the earlier forecast of 2% to 3%. This upgrade signals management's confidence in the demand environment and its ability to execute on its project pipeline. The company maintained its operating margin guidance for the fiscal year at a healthy 20% to 22%, reinforcing its focus on profitable growth.

Strong Deal Momentum and AI Focus

Underpinning the optimistic outlook is the company's robust performance in securing large deals. Infosys reported a Total Contract Value (TCV) of $1.8 billion for the quarter, a substantial figure for a seasonally weak period. Notably, 57% of this TCV was from net new business, highlighting the company's ability to win new clients and expand its market share. CEO and MD Salil Parekh attributed this success to the company's differentiated offerings in enterprise artificial intelligence. He stated, "Infosys delivered a strong Q3 performance demonstrating how our differentiated value propositions in enterprise AI, through Infosys Topaz, are consistently driving higher market share. Clients increasingly view Infosys as their AI partner."

Key Financial Highlights for Q3 FY26

Market Reaction and Investor Sentiment

The market's reaction was overwhelmingly positive, with investors focusing on the strong guidance and deal wins rather than the headline profit decline. In New York, Infosys ADRs surged by as much as 8.6% to $19.03. This robust performance in the U.S. market underscored global investor confidence in the company's strategic direction. In India, the shares had closed with a modest gain of 0.75% at ₹1,609.9 on the BSE ahead of the results announcement, suggesting the positive news was not yet priced in by the domestic market.

Operational Stability and Workforce Management

Beyond the financial numbers, Infosys demonstrated stability in its operations. The company's attrition rate on a last-twelve-months basis eased to 12.3%, indicating improved employee retention. Furthermore, CFO Jayesh Sanghrajka noted that the company had hired 18,000 freshers so far in the fiscal year, signaling a healthy talent pipeline to support future growth. Sanghrajka summarized the quarter's performance as broad-based, highlighting the sequential revenue growth, margin expansion, and robust free cash generation of $165 million.

Analysis: Looking Beyond the Numbers

Investors and analysts have interpreted the Q3 results as a sign of resilience for both Infosys and the broader Indian IT sector. The decision to raise revenue guidance, despite ongoing global macroeconomic uncertainties, suggests that demand for digital transformation and AI-led services remains strong. The market's willingness to look past the one-time impact on profit and focus on the forward-looking guidance and strong deal pipeline indicates a belief in the company's long-term growth story. The performance of key segments, such as financial services and manufacturing, further supports this positive outlook.

Conclusion

Infosys's third-quarter performance effectively balanced a short-term, one-off financial impact with a strong, optimistic long-term outlook. The company's ability to secure significant new deals and its strategic focus on high-growth areas like enterprise AI have positioned it well for the future. For investors, the key takeaway is the underlying strength of the business, reflected in the upgraded guidance. The focus now shifts to the company's execution in the coming quarters as it works to convert its robust deal pipeline into sustained revenue and profit growth.