Infosys Q3 Results: Guidance Upgrade Sparks Rally, Brokerages See 37% Upside

Introduction

Infosys Ltd. delivered a strong signal of returning demand to the market with its third-quarter results for fiscal year 2026. The company upgraded its full-year revenue guidance, a move that overshadowed a year-on-year decline in net profit. This optimistic outlook immediately resonated with global investors, causing the company's American Depository Receipts (ADRs) to surge over 10% in overnight trading, setting a positive tone for its stock ahead of the next Indian market session.

Guidance Upgrade Steals the Show

The most significant announcement was the upward revision of the revenue growth guidance for FY26. Infosys now projects revenue to grow between 3.0% and 3.5% in constant currency terms, a notable 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 in a challenging macroeconomic environment where client spending has been cautious.

Decoding the Q3 Financials

For the quarter ending December 31, 2025, Infosys reported a consolidated revenue of ₹45,479 crore. This represents an 8.9% rise year-on-year and surpassed analyst expectations. However, the consolidated net profit for the quarter declined by 2.2% year-on-year 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.

Strong Deal Momentum Underpins Confidence

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 that provides strong revenue visibility. A key highlight was that a significant portion 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.

Brokerages Turn Bullish on Outlook

The positive guidance and strong deal flow prompted several brokerage firms to reiterate their bullish stance on Infosys, with many raising their target prices. The consensus view is that the company's forward-looking indicators outweigh the short-term impact on profitability. Motilal Oswal offered one of the most optimistic targets, implying a 37% upside potential from the previous closing price.

Operational Health and Growth Drivers

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 and operational stability. Furthermore, the company's headcount increased during the quarter, a sign of confidence in future demand. Key growth was led by the Life Sciences, BFSI, and Manufacturing verticals, with Europe standing out as a strong performing region. The strategic focus on AI-led services is emerging as a critical long-term growth driver.

Market Context and Stock Performance

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. Despite this sharp rebound, Infosys shares have underperformed the Nifty 50 over the past year, which has made its valuation appear more reasonable to analysts. With Indian markets closed for a holiday, there is strong anticipation of buying interest when trading resumes.

Conclusion

Infosys's third-quarter performance 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 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 focus now shifts to execution in the coming quarters as Infosys works to convert its robust deal pipeline into sustained growth.