Infosys Ltd., India’s second-largest IT services company, reported a mixed performance for the third quarter, marked by a decline in profit but steady revenue growth and an improved outlook for the coming fiscal year.
The results highlight both the near-term pressures facing the sector and early signs of stabilisation in client spending.
Profit declines amid labour code impact
Infosys reported a 2% year-on-year decline in consolidated net profit to ₹6,654 crore for the quarter ended December, compared with ₹6,806 crore a year earlier.
The figure was below analyst estimates of ₹7,390 crore.
The profit decline was largely attributed to an exceptional item of ₹1,289 crore related to the impact of India’s new labour codes.
Operating profit for the quarter fell 6% year-on-year and 10.7% sequentially to ₹8,355 crore, while the operating margin narrowed sharply to 18.4%, down from 21.3% in the year-ago quarter and 21% in the September quarter.
The margin contraction reflected the combined effect of labour code-related costs, higher sales-related expenses, and continued investments in new developments.
Similar pressures have been reported by peers Tata Consultancy Services and HCL Tech, with global brokerage Jefferies warning that labour code implementation could erode IT company profits by 10–20%.
Revenue growth and guidance upgrade
Despite margin pressures, Infosys posted resilient top-line growth.
Revenue from operations rose 9% year-on-year to ₹45,479 crore.
In constant currency terms, revenue increased 1.7% year-on-year and 0.6% quarter-on-quarter.
Reflecting improving demand conditions, the company raised its revenue growth guidance for FY26 to 3–3.5% in constant currency terms, up from the earlier range of 2–3%.
Analysts on average expect a 3.13% increase.
The company retained its margin guidance of 20–22%.
“Infosys delivered a strong Q3 performance demonstrating how our differentiated value propositions in enterprise AI, through Infosys Topaz, are consistently driving higher market share,” said Salil Parekh, CEO and MD.
Infosys also reported strong deal momentum, with large deal wins totalling $4.8 billion during the quarter and net new deals accounting for 57% of the total contract value.
Sector trends, AI focus and market reaction
Performance varied across industry segments.
Financial services, the company’s largest revenue contributor, grew 4.8% in reported terms and 3.9% in constant currency.
Manufacturing revenues rose 10.8% reported and 6.6% in constant currency, while the communications segment delivered strong growth of 11.6% reported and 9.9% constant currency.
In contrast, retail revenues declined 3.8% reported and 5.5% in constant currency, reflecting cautious technology spending by global retailers amid weak consumer demand.
“Our performance was broad-based in Q3 with 0.6% sequential revenue growth, 0.2% adjusted operating margin expansion, stellar large deal wins at $4.8 billion, and robust adjusted free cash generation at $965 million in a seasonally weak quarter,” said Jayesh Sanghrajka, CFO.
Free cash flow generation stood at $915 million, while adjusted free cash flow reached $965 million, representing 112.8% of adjusted net profit.
Infosys raised its annual sales forecast as signs emerged that a prolonged slowdown in corporate IT spending may be easing, even as demand remains muted in the US and Europe.
The company and its peers continue to pivot toward artificial intelligence and cloud services to drive growth, while also bracing for potential disruption from changes to the US H-1B visa regime.
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