Continued deal momentum and discretionary pick point to a better fiscal 2026 for Infosys

Infosys posted better-than-expected growth in revenue and net profit for the December 2024 quarter while meeting the margin expansion expected by analysts on average. The company’s upward revision in FY25 revenue guidance was also higher than expected due to a faster recovery in discretionary spending across the banking, financial services and insurance (BFSI) and consumer retention segments. The country’s second-largest IT exporter has increased headcount for the second straight quarter on a sequential basis, and expects to add more new employees in the next fiscal year than in the current year.

These factors and continued deal flow point to higher business momentum in the coming financial year. Infosys shares have gained twice as much as Tata Consultancy Services (TCS) shares in the past 12 months; The former is likely to maintain its lead in the medium term in light of greater business attraction.

So far, the top three IT exporters from India, including TCS, Infosys and HCL Technologies (HCLTech) on an annual revenue basis, have announced Q3 numbers. While the impact of seasonal weakness on its top lines was mixed, each reported sequential improvement in operating margin (EBIT margin), buoyant deal wins supported by gradual recovery in discretionary projects and increasing employee attrition rate.

A look at the trailing 12 months (TTM) data shows that HCLTech was leading the pack in terms of year-over-year growth in dollar-denominated revenue. It has held TTM growth above 5% in every quarter since June 2021. For the other two companies, growth has remained below 5% in each of the past five quarters. Given this, HCLTech is expected to register the fastest growth among Tier 1 IT companies for FY25. In the TTM period up to December 2024, TCS, Infosys and HCLTech reported year-on-year revenue growth of 45%, 3% and 5.3% respectively. .

For Infosys, Europe showed traction in the BFSI segment in the December quarter after the US reported a slight rise in the previous quarter. The recent market reported a boom in the retail sector. The company is currently developing more than 100 agents on its artificial intelligence (AI) platform for customers, which has supported business momentum.

The company added 5,591 net employees sequentially taking the total headcount to 3,23,379 at the end of December. On a year-over-year basis, it added 716 employees, marking the first quarter of net additions after a five-quarter gap. The attrition rate rose to 13.7% from 12.9% sequentially. Revenue for the quarter grew 0.9% to $4,939 million compared to analysts’ average forecast of a 0.4% decline. Operating margin improved by 20 basis points to 21.3% thanks to currency movement and operating efficiencies. Net profit rose 4.6% sequentially to Rs 6,806 crore. The total contract value was US$2.5 billion, which is equivalent to US$2.4 billion in the previous quarter. Although it was lower than the $3.2 billion TCV recorded in the same quarter last year, deal flow is likely to improve in subsequent quarters given the gradual momentum in discretionary spending. Infosys raised revenue growth guidance to 4.5-5% for FY25 from previous guidance of 3.75-4.5% growth. This was better than expectations of 4-4.5% growth guidance. Over the last 12 months, Infosys has gained 17.5% on the BSE compared to returns of 8.3% and 13.7% recorded by TCS and HCLTech. It is expected to maintain its lead amid brighter prospects.