Infosys' weak Q1 raises the risk of another year of lagging peers

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IT giant Infosys Ltd's June quarter (Q1FY27) results delivered a series of negative surprises—weak revenue growth, a guidance cut, softer deal wins and a cautious management outlook.

The stock fell more than 2% in Friday's early trade, even though expectations heading into the quarter were already subdued.

Sequential constant-currency (CC) revenue grew just 1% in Q1FY27, missing the Street's 2% growth estimate. The drag primarily came from a 50-basis-points (bps) impact from the termination of a programme by an energy, utilities, resources and services (EURS) client, softer volumes and lower-than-expected pricing increases. The communications segment also declined sequentially.

Revenue fell sequentially across all geographies except North America, where growth was partly supported by the Optimum acquisition.

The bigger disappointment was the cut in FY27 CC revenue growth guidance.

The guidance cut has stoked concerns around AI-led productivity deflation, although management has not quantified the impact. AI services accounted for 8.2% of Infosys' Q1FY27 revenue.

Motilal Oswal Financial Services, notes that peers have pointed to an incremental 10-15% deflation, thus, despite healthy deal total contract value (TCV) and a strong 61% net new deal mix, productivity pass-throughs continue to knock growth off.

Productivity pass-through refers to service providers sharing efficiency gains—typically generated through automation and AI—with clients through lower prices or discounted billing.

"We expect this to continue, and hence believe the deal TCV will become a less reliable indicator of revenue growth going forward," Motilal Oswal said.

Large-deal TCV rose 11% sequentially, but declined year-on-year to $3.6 billion. Net new deal wins of $2.2 billion increased 5%, while renewal deal TCV fell 18% year-on-year.

Earnings before interest and tax (Ebit) margin of 21.1% was broadly in line with expectations, but offered limited comfort in the current environment. Margins were supported by favourable currency movements and Project Maximus-led efficiencies.

Infosys maintained its FY27 Ebit margin guidance of 20-22%, which factors in the impact of upcoming salary hikes.

Meanwhile, Infosys has promoted Ashiss Kumar Dash as CEO-designate to succeed Salil Parekh from 1 April.

The appointment removes leadership uncertainty and signals continuity by choosing an internal candidate. Even so, the transition phase could remain an overhang for the stock, which has fallen 36% so far in 2026, compared with a 30% decline in Tata Consultancy Services Ltd (TCS).

Infosys trades at a FY28 price-to-earnings multiple of 12.85, below TCS' 13.87 and HCL Technologies' 16.33, according to Bloomberg data.

If Infosys fails to catch-up on revenue growth, as current expectations suggest, this gap could widen.

As FY27 growth expectations are reset, earnings downgrades continue. "Infosys is tracking toward a fourth consecutive year of revenue moderation, with FY27E CC organic growth estimated at 0.6% QoQ CC," said a Systematix Shares and Stocks (India) report dated 24 July.

The brokerage forecasts 2.2% CC revenue growth for FY27, implying Infosys will continue to trail its larger peers.

Harsha Jethmalani is a Deputy Editor at Mint with over a decade of experience covering stock markets and corporate India. As a key member of the Mark to Market team, she specializes in delivering cutting-edge commentary on market trends, the economy, and corporate financial reports.<br><br>Born and raised in Mumbai, Harsha’s entry into business journalism was a serendipitous pivot. Graduating during the 2008–2009 financial crisis, her initial goal of becoming a research analyst at an MNC was rerouted. However, what began as a chance career move quickly became a conscious choice; she discovered that financial journalism is a powerful storytelling tool capable of influencing and empowering...