Infosys beats revenue estimates in Q3, sees demand recovery gathering pace

The Bengaluru-based company fell behind its larger peer Tata Consultancy Services Ltd and rival HCL Technologies Ltd after posting modest sequential revenue growth. It raised its full-year guidance, reflecting the optimism about future demand previously expressed by .

Speaking at the company’s post-earnings press conference on Wednesday, Infosys managing director Salil Parekh noted a strong major deal pipeline and rising demand from financial services and energy customers, fueled by AI-led efforts that underpin the company’s confidence in growth beyond the current financial year.

India’s second largest company in the October-December quarter IT services company reports revenue of $5.1 billion, beating $5 billion forecast Bloomberg Survey of 36 analysts. The revenue figure increased by 0.45% sequentially and 3.24% on an annual basis. Most of the growth came from healthcare companies, which accounted for less than a tenth of its revenue.

Its growth was the slowest among its peers; TCS and HCLTech grew by 0.58% and 4.09% respectively, ending at $7.51 billion and $3.79 billion respectively.

However, profitability took a hit as operating margins fell 260 basis points sequentially to 18.4% due to new labor laws implemented by the government for which Infosys incurred an up-front cost of $143 million. Of course, if the impact of labor laws is ignored, the company’s operating margin increased by 20 basis points to 21.2%.

Peer TCS and HCLTech also incurred additional costs of $238 million and $109 million, respectively, due to labor laws. HCLTech’s margin increased by 110 basis points to 18.6%, while TCS’s margin remained unchanged at 25.2%. The laws increase the basic wage paid to employees and thus increase statutory payments such as provident fund and gratuity.

Infosys’ net profit at $747 million fell 10.97% and 7.1% sequentially compared to the same period last year, also falling short of the Bloomberg estimate of $818.7 million from 31 analysts.

The company now must report a revenue decline in the fourth quarter to miss out on last year’s $19.28 billion in revenue.

At least one analyst welcomed Infosys’ results. “The result is higher than we expected. The macroeconomic environment and rapid build projects will accelerate for Infosys, led by BFSI, retail and manufacturing customers,” said Amit Chandra, vice president at HDFC Securities, adding that AI-led demand is expected to pick up.

The company’s results were welcomed by the markets; Its shares rose 2.45% to $17.95 in premarket hours on the New York Stock Exchange as of 6:05 p.m.

Cautious optimism all around

Parekh remained cautiously optimistic about the future. “We’re not seeing any deterioration, that’s a sign, and generally we’re seeing the macro environment in a situation where people are expecting maybe some rate cuts. We’ll see if that happens, especially in the US,” he said.

This warning was also reflected in its revenue expectation for the full year, raising it to 3-3.5% in constant currency terms from 2-3% in October. Fixed currency does not take into account currency fluctuations.

This was in line with peer HCLTech, which narrowed its forecast to 4-4.5% for FY26 from 3-5% in the previous quarter. TCS does not offer any guidance on revenue, but analysts expect the company to report a revenue decline for the full year.

Infosys’ interpretation of the demand was similar to that of its peers.

“In the second quarter (July-September 2025), we generally stated that: “The demand environment is improving compared to the first quarter, so this trend continues in the third quarter as well,” TCS CEO K. Krithivasan said in the company’s post-earnings conference call with analysts on Jan. 12.

He said the company focuses on short-cycle projects where decision-making is faster. “We’re seeing a steady increase (in such projects) and you can see that reflected in our reported revenue, and that’s true across all industry segments,” Krithivasan said.

Meanwhile, C. Vijayakumar, managing director of HCLTech, pointed out that the ongoing uncertainty in the global market has led to a slowdown in customers’ spending. But “the underlying demand for technology as a driver of business transformation remains structurally intact,” Vijayakumar said at the company’s post-earnings press conference on Jan. 12.

Discretionary spending is emerging in new pockets, he said, and the company’s “focus is on proactively identifying where new spending is occurring and targeting those opportunities.”

AI number not reported

Unlike its counterparts, Infosys has refrained from sharing AI-derived revenue. TCS reported $1.8 billion in annual revenue from AI as of December, while HCLTech reported $146 million from advanced AI.

But for now, Infosys expects more work from its AI representatives.

“There are places where the economics (of the deal) completely change from the customer perspective. Here, if you take the legacy modernization, use the software intermediaries, plus our expertise and knowledge, the whole economics from the customer perspective become much better, and that allows a lot of the unrealized projects to start happening,” Parekh said.

However, hiring these representatives does not pose a recruiting challenge for now, as the company reiterated its stance of continuing to recruit on campus.

The company increased its number of personnel by 5,043, reaching 337,034 employees at the end of the third quarter.

In comparison, TCS and HCLTech reduced headcount by 11,151 employees and 261 employees; but much of the decline in the former was due to redundancies in July last year, when 2% of the workforce in mid- to senior-level roles were given marching orders.