Infosys has lowered its FY27 revenue growth guidance to 1-2% from the earlier 1.5-3% range following a soft second-quarter performance. While the company secured $5.2 billion in large deals, revenue growth remained muted at 1.2% in constant currency, reflecting delayed discretionary spending in retail and hi-tech sectors. Investors are now focusing on how the company manages margin pressure and executes these large deal wins.
Infosys reported a challenging second quarter for the current financial year, with both revenue and operating margins falling short of market expectations. The company, a bellwether for the Indian IT sector, saw its revenue grow by 1.2% in constant currency terms, a figure supported by recent acquisitions rather than pure organic growth. Following this performance, management reduced its revenue growth guidance for FY27 to a range of 1% to 2%, down from the previous forecast of 1.5% to 3%.
This downward revision highlights the ongoing struggle with delayed discretionary spending. Clients in the retail and hi-tech verticals continue to defer non-essential technology projects, creating a headwind for the company. Operating margins also saw a slight contraction, slipping by 0.1 percentage points quarter-on-quarter to 21%, as the company navigated these cost-sensitive conditions.
Despite the immediate slowdown, the company reported a strong order book, securing $5.2 billion in large deals during the quarter. Notably, 62% of these deals are net-new business, which implies the company is winning market share rather than just renewing existing contracts. A significant portion of this success includes a major $2 billion, seven-year agreement in the financial services sector, which provides a level of long-term revenue visibility extending into FY28.
Another key area of development is the company's focus on Artificial Intelligence. AI-related revenue grew by 29% sequentially, now accounting for 10.5% of total revenue. However, this growth introduces a new layer of complexity for investors. While AI is a clear growth driver, it also poses a risk of deflation for legacy services, as older, standard IT offerings may face pricing pressure as they are replaced or augmented by newer AI tools.
For investors, the near-term outlook depends on how effectively the company executes its large deal pipeline and manages operational efficiency. The company is actively promoting internal initiatives like Project Maximus to support margins in the second half of the year. The key monitorable will be whether the combination of new large deals and internal efficiency gains can offset the ongoing weakness in discretionary technology spending. Investors may also track management commentary on whether the retail and hi-tech segments show signs of recovery or if demand remains constrained in the coming quarters.