Infosys American Depositary Receipts (ADRs) fell as much as 7% on the New York Stock Exchange on Friday after the IT services major reported its second-quarter results for FY27 and cut its revenue growth guidance. The stock pared some losses and was trading 4.35% lower at $12.65 at 11:21 a.m. EDT.
The sell-off followed a mixed set of results, with revenue growth broadly in line with expectations and deal wins improving, but a reduction in the full-year growth outlook and pressure on margins weighing on investor sentiment.
Infosys cut its FY27 revenue growth guidance in constant currency terms to 1%-2% from its earlier forecast of 1.5%-3%. Management also flagged softer volumes, pricing pressure and uncertainty in the macroeconomic environment.
Here are three key factors weighing on the stock.
Infosys Cuts Revenue Growth Guidance
The biggest concern for investors was Infosys' decision to lower its revenue growth guidance for FY27. The company now expects constant-currency revenue growth of 1%-2%, compared with the earlier range of 1.5%-3%.
The revised outlook reflects continued weakness in discretionary spending, particularly among retail and high-tech clients, where customers have been scaling back or slowing down projects. Management also indicated that higher offshoring through the year is affecting the overall guidance. The company had previously indicated that offshoring would have an impact of around 1%.
Chief Financial Officer Jayesh Sanghrajka flagged softer volumes and pricing pressure across client profiles, pointing to an environment in which clients remain cautious about spending.
READ | Infosys Q2 Attrition Falls To 12.7%: Headcount Rises To 3.33 Lakh On 8,000 New Fresher Hires
While Infosys' large deal wins have improved, the conversion of these deals into revenue growth remains important as clients continue to scrutinise discretionary technology budgets.
Margin Pressure And Pricing Intensity
Infosys reported a sequential decline in operating margin for the September quarter, adding to concerns about profitability. The company's earnings before interest and tax (EBIT) margin fell 10 basis points to 20.97% in Q2FY27 from 21.08% in the previous quarter. This was a slight miss against expectations, even as revenue and EBIT increased sequentially.
Management flagged compensation-related costs as a headwind for margins in the second half of the financial year. Pricing intensity is also expected to persist, while softer volumes could add to the pressure on profitability.
The combination of employee-related costs and pricing pressure could limit margin expansion even if deal activity remains healthy.
Retail And High-Tech Weakness, Along With AI-Led Growth Compression
Weak discretionary spending among retail and high-tech clients remains another drag on Infosys' near-term growth outlook. Customers in these segments are slowing down projects, affecting the pace at which technology spending translates into revenue.
At the same time, artificial intelligence is emerging as both a growth opportunity and a source of pressure on traditional services revenue. While AI-related work is expanding, it can also compress revenue from conventional technology services as clients look for productivity gains and more efficient delivery models.
Infosys reported AI-related revenue of $540 million in Q2, up 29% sequentially from $417 million in Q1. AI revenue accounted for 10.5% of the company's total revenue, underlining the growing contribution of the business.
Management acknowledged that AI is driving growth but is also leading to compression. The uncertain macroeconomic environment adds to the challenge of translating new opportunities into stronger overall growth.
Despite these headwinds, the company said its AI business and large deal wins are progressing well.
Infosys Q2 Results
Infosys reported revenue of Rs 49,244 crore for Q2FY27, up 2.14% sequentially from Rs 48,211 crore in the previous quarter. EBIT rose 1.64% to Rs 10,330 crore from Rs 10,163 crore. Net profit increased 0.69% to Rs 7,823 crore from Rs 7,769 crore.
The sequential growth in revenue was 1.2% in constant currency terms, compared with 1% in Q1, broadly in line with expectations. However, the 20.97% EBIT margin was down 10 basis points from the previous quarter.
The results therefore showed modest sequential growth, but the lower guidance and margin pressure remained key concerns for investors.
Infosys reported large deal wins worth $5.2 billion in Q2, of which 62% were net new deals. This was higher than the $3.6 billion reported in Q1 and better than expectations, offering some support to the company's medium-term growth outlook.
The company also continued to add employees. Infosys reported a net increase of 4,000 employees during the quarter and hired 8,000 freshers. Its earlier hiring guidance remains unchanged, with the company having completed around half of its planned headcount additions in the first half of the financial year.
On cybersecurity, management said Infosys has a strong business and is working with several clients to deploy frontier cyber models. It plans to scale up the business further and has previously made a small acquisition in the cybersecurity segment.
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