Infosys Q3 Beats Expectations, Lifts FY26 Guidance, Eyes Outperformance

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AuthorVihaan Mehta|Published at:
Infosys Q3 Beats Expectations, Lifts FY26 Guidance, Eyes Outperformance
Overview

Infosys delivered a strong Q3 FY26, exceeding seasonal expectations with sequential revenue growth and an upward revision to its full-year forecast. The company secured significant deal wins, including a £1.6 billion NHS contract, and showed progress in AI initiatives. Improved margins and an attractive valuation suggest potential outperformance for the IT bellwether in 2026.

Infosys Reports Strong Q3 FY26 Performance

Infosys has posted a robust performance in the third quarter of FY26, navigating seasonal headwinds effectively. Revenues saw sequential growth of 0.5 percent in reported currency and 0.6 percent in Constant Currency (CC). This positive execution, coupled with improved visibility for the final quarter, has prompted the company to revise its full-year guidance upwards.

Guidance Raised, Margins Improve

Full-year revenue guidance for FY26 has been increased from a projected 2-3 percent in Constant Currency to a more optimistic 3-3.5 percent. The company reported a sequential margin improvement of 20 basis points to 21.2 percent, excluding a one-time provision for the Labour Code. Despite this adjustment, the reported margin stood at 18.6 percent, with the recurring impact of the labour code change expected to be around 15 basis points.

Mega Deal Fuels Order Flow

Deal wins were a significant highlight, with 26 large deals secured, 57 percent of which were net new. The quarter included two mega deals, notably a £1.6 billion, 15-year contract with the UK's National Health Service (NHS). This strong influx of business indicates a healthy pipeline and sustained demand for Infosys's services.

AI Momentum and Sector Recovery

Infosys is witnessing a notable recovery in its Financial Services and Energy Utility segments. The company highlighted increasing discretionary demand in financials and anticipates stronger traction from BFSI and Energy sectors in 2026. AI-led work is steadily gaining momentum, with nearly 90 percent of its top 200 clients actively using AI. Infosys is collaborating with Cognition to deploy DEVIN, an AI software engineer, internally and with clients, underscoring its commitment to AI innovation.

Valuation Offers Upside

The company is actively building capacity, evident in a net headcount addition of over 5,000 employees despite lower utilization rates. With strong order flows, positive commentary on key sectors, and steady progress in AI, Infosys's stock, which has underperformed the broader market over the past year, now presents an undemanding valuation. Analysts have revised their rating from 'Equal weight' to 'Overweight', suggesting a potential for outperformance in the coming year.

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