Infosys Q3 Results: Guidance Upgrade Sparks 10% ADR Rally

Introduction

Infosys Ltd. delivered a robust performance for the third quarter of fiscal year 2026, leading to a significant rally of over 10% in its American Depository Receipts (ADRs). The primary driver for this investor optimism was the company's decision to raise its full-year revenue guidance, a move that overshadowed a sequential dip in net profit caused by a one-time provision. The results signal growing confidence in client spending and a strong deal pipeline, positioning Infosys favorably for the upcoming fiscal year.

Q3 Financial Performance in Detail

For the quarter ending December 31, 2025, Infosys reported a consolidated revenue of ₹45,479 crore. This represents a 2.2% increase from the previous quarter and an 8.9% rise year-on-year, surpassing analyst expectations. The constant currency (CC) revenue grew by 0.6% sequentially, which was also ahead of market estimates.

However, the consolidated net profit for the quarter declined by 9.6% sequentially to ₹6,654 crore. The company clarified that this fall was not due to operational weakness but was the result of a one-time provision of ₹1,289 crore made to comply with new government labour codes. Excluding this exceptional item, the profit figures would have reflected underlying stability. The company's Earnings Before Interest and Taxes (EBIT) stood at ₹9,479 crore, with an EBIT margin of 20.8% for the quarter, remaining within the company's guided range.

Upgraded Guidance Signals Confidence

The most significant announcement from the results was the upward revision of the revenue growth guidance for the full fiscal year 2026. Infosys now projects revenue to grow between 3.0% and 3.5% in constant currency terms, an increase from the earlier forecast of 2.0% to 3.0%. This upgrade is a clear indicator of management's confidence in the demand environment and its ability to secure and execute projects. The company also maintained its operating margin guidance for the fiscal year at a healthy 20% to 22%, reinforcing its commitment to profitable growth.

Strong Deal Momentum Continues

Infosys's optimistic outlook is supported by its impressive performance in securing large deals. The company reported a Total Contract Value (TCV) of $1.8 billion for the quarter, a substantial figure, especially for a seasonally weaker period. This represents a significant increase from the previous quarter. A key highlight was that 57% of this TCV came from net new business, demonstrating the company's success in winning new clients and expanding its market presence. CEO and MD Salil Parekh attributed this success to the company's differentiated offerings in enterprise artificial intelligence, particularly through its Infosys Topaz platform, stating that clients increasingly view Infosys as their preferred AI partner.

Operational Stability and Workforce Trends

Beyond the financial metrics, Infosys showed positive trends in its operational management. The company's voluntary attrition rate on a last-twelve-months basis eased to 12.3%, a notable improvement that indicates better employee retention. Furthermore, the company's headcount increased by 5,043 employees during the quarter, reaching an 11-quarter high. CFO Jayesh Sanghrajka confirmed that Infosys had hired 18,000 freshers so far in the fiscal year, signaling a healthy talent pipeline to support future growth projects.

Market Reaction and Analyst Outlook

The market's reaction was overwhelmingly positive. Investors focused on the upgraded guidance and strong deal wins rather than the headline profit decline. In New York, Infosys ADRs surged by 10.45% to close at $19.35. This robust performance underscored global investor confidence in the company's strategic direction and future prospects.

Analysts and brokerage firms echoed this positive sentiment, with most retaining their 'Buy' ratings on the stock. Motilal Oswal Financial Services (MOFSL) reiterated its 'BUY' rating with a target price of ₹2,200, implying a significant upside. Nuvama Institutional Equities also maintained a 'BUY' call, raising its target price to ₹1,900. Analysts noted that two consecutive quarters of solid deal wins provide high growth visibility for the coming quarters.

Analysis and Forward Look

The Q3 results demonstrate Infosys's resilience in a challenging macroeconomic environment. The market's willingness to look past the one-time impact on profit and focus on the forward-looking guidance indicates a strong belief in the company's long-term growth story. The strategic focus on high-growth areas like enterprise AI is clearly paying off, as evidenced by the strong deal pipeline. While some analysts pointed to a potential revenue headwind from a ramp-down of the Daimler contract post-2026, the overall consensus is that upside risks meaningfully outweigh downside risks at current valuations.

Conclusion

Infosys's third-quarter performance effectively balanced a short-term, one-off financial impact with a strong and optimistic long-term outlook. The upgraded revenue guidance, backed by substantial deal wins and stable operational metrics, has reinforced investor confidence. 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, solidifying its position as a leader in the IT services sector.