Infosys Boosts FY26 Guidance, ADRs Soar Over 10%

Infosys Signals Demand Recovery with Upgraded Guidance

Infosys Ltd. delivered a robust performance for the third quarter of fiscal year 2026, providing a strong positive signal for the Indian IT services sector. The company's decision to raise its full-year revenue growth forecast triggered a significant rally in its American Depositary Receipts (ADRs), which surged over 10% in overnight trading on the New York Stock Exchange. This optimistic outlook, backed by strong deal wins, overshadowed a sequential dip in net profit caused by a one-time provision.

Decoding the Q3 Financial Performance

For the quarter ending December 31, 2025, Infosys reported a consolidated revenue of ₹45,479 crore, marking a 2.2% increase from the previous quarter and an 8.9% rise year-on-year. This figure surpassed analyst expectations, reflecting steady business momentum. The company posted a sequential revenue growth of 0.6% in constant currency terms, beating the street's estimate of 0.3%.

However, consolidated net profit for the quarter declined by 9.7% sequentially to ₹6,654 crore. This drop was not due to operational weakness but was primarily attributed to a one-time provision of ₹1,289 crore. This provision was made to comply with new government labour codes enacted in November 2025, which impacted gratuity and leave liabilities. Without this exceptional item, the profit figures would have presented a more favorable picture.

Upgraded Guidance Fuels Investor Confidence

The primary catalyst for the market's enthusiastic response was the upward revision of Infosys's revenue guidance for fiscal 2026. The company now projects revenue growth in the range of 3.0% to 3.5% in constant currency terms, a significant increase from its earlier forecast of 2% to 3%. This upgrade suggests that management anticipates a recovery in client spending and faster decision-making, a positive indicator for the broader global IT services industry. Furthermore, Infosys maintained its operating margin guidance for the fiscal year at a healthy 20% to 22%, reinforcing its commitment to profitable growth.

Strong Deal Momentum Underpins Outlook

A significant highlight of the quarter was the sharp rebound in large deal wins. Infosys secured deals with a Total Contract Value (TCV) of $1.8 billion, a substantial figure that provides strong revenue visibility for the upcoming quarters. This performance was a considerable jump from the $1.1 billion reported in the previous quarter. The quality of these deals was also robust, with 57% of the TCV coming from net new contracts. A major contributor to this success was a large-scale engagement with the UK's National Health Service, underscoring the company's capability in securing significant public sector contracts.

Management's Focus on Enterprise AI

CEO and MD Salil Parekh attributed the strong performance to the company's differentiated offerings, particularly in enterprise artificial intelligence through its Infosys Topaz platform. He stated, "Clients increasingly view Infosys as their AI partner with demonstrated expertise, innovation capabilities and strong delivery credentials. This has helped them unlock business potential and enhanced value realization." This strategic focus on AI is central to the company's plan to capture higher market share and drive future growth.

Operational Stability and Workforce Trends

Infosys also demonstrated positive trends in its workforce management. The company's headcount increased for the second consecutive quarter, reaching an 11-quarter high. Simultaneously, the employee attrition rate on a last-twelve-months basis eased to 12.3%, indicating improved employee retention and a more stable workforce. This stability is crucial for ensuring consistent project delivery and maintaining client satisfaction.

Market Reaction and Analyst Views

The market's reaction was overwhelmingly positive. The nearly 10.45% surge in Infosys's ADRs to $19.35 reflected strong investor confidence in the revised guidance and robust deal pipeline. Several analyst firms reiterated their 'Buy' ratings. Nuvama noted that two consecutive quarters of solid deal wins provide high growth visibility and raised its target price to ₹1,900. Motilal Oswal Financial Services (MOFSL) also reiterated its 'BUY' rating with a target price of ₹2,200, stating that upside risks meaningfully outweigh downside risks, despite a potential revenue headwind from a Daimler contract ramp-down after December 2026.

Conclusion: A Resilient Outlook

Infosys's third-quarter performance provides a compelling narrative of resilience and returning momentum. While the headline net profit was affected by a one-time charge, the underlying operational strength—highlighted by solid revenue growth, massive deal wins, and stable margins—painted a positive picture. For investors, the key takeaway is the company's optimistic outlook, which could serve as a leading indicator for a broader recovery in the IT services sector. The focus now shifts to Infosys's ability to convert its strong deal pipeline and leverage its AI capabilities to meet its enhanced growth targets.