Infosys misses growth guidance, estimates slowest start to fiscal

Infosys Ltd on Thursday joined peers Tata Consultancy Services and Wipro Ltd in reporting disappointing earnings amid jitters in their key markets, signalling a potential hiring slowdown across the sector this year.

India’s second biggest IT services company missed its revenue growth target for FY25 and slipped on profit, despite besting analyst estimates on both fronts. Infosys also projected its slowest growth for the fiscal at the start of the year in a decade.

The company ended FY25 with $19.28 billion in revenue, beating a Bloomberg poll estimate of $19.16 billion. But its 4.2% year-on-year revenue growth in constant currency terms (not taking currency fluctuations into account) missed its goal of 4.5-5% outlined in January 2025.

It also projected flat to 3% revenue growth for FY26 in constant currency terms, its weakest guidance since April 2009, when it had projected a revenue decline of 6.7-3.1% for FY10.

Mirror image

The company's performance and commentary echo those of TCS and Wipro, India's largest and fourth-largest IT services companies. The two companies said earlier this week that clients had slowed decision-making and paused projects owing to the hazy macroeconomic environment.

Like TCS and Wipro, Infosys too avoided mention of hiring targets, with the management adopting a wait-and-watch approach. Headcount is a key determinant of the overall demand environment in the IT industry. Caution in hiring spells bad news for nearly 1.5 million students graduating from India's engineering colleges every year.

Also read | Infosys started the year strong, but will the end pack a punch?

Infosys also followed TCS and Wipro in report a sequential decline in its fourth quarter revenue.

Wipro, like Infosys, also expects to grow its revenue at its slowest pace in the first three months of FY26. The company has already outlined a quarterly revenue decline between 3.5% and 1.5% in constant currency terms. Wipro gives guidance for the following quarter, whereas Infosys gives guidance for the full year. TCS does not give quarterly or yearly growth guidance.

IT's uncetainties

Infosys’s commentary factored in macroeconomic uncertainty, much like peers.

“At the bottom end of the guidance, we have baked in some deterioration in the environment, some heightened uncertainties,” said Jayesh Sanghrajka, chief financial officer of Infosys, in the company’s post-earnings media briefing on Thursday.

CEO Salil Parekh, though, said clients have not paused and things could change quickly. “Things can change in a short period in terms of what can happen with the economic outlook,” said Parekh in the media briefing.

The gloomy outlook from three of the country’s big four IT service providers stems from the tariff war unleashed by US President Donald Trump and consequent uncertainties. Such uncertainty might prompt the world’s largest companies, which are clients of homegrown outsourcers, to hold back spending on tech projects.

Read this | Infosys picks top 100 ideas from employees to be converted to client offerings

“[T]he tariff hike by the US on a range of goods and its subsequent pause on additional/differential duty have led to uncertainty on the final implementation,” analysts at Kotak Institutional Equities Kawaljeet Saluja, Sathishkumar S. and Vamshi Krishna wrote in a note dated 17 April, after Wipro declared its earnings on Wednesday. “Clients have paused transformational programs and discretionary projects and shifted focus to cost take-outs.”

Falling profit

On the profit front, Infosys’s net profit for the year fell 0.28% to $3.16 billion, against a Bloomberg survey of $3.09 billion.

In the March quarter, Infosys’s revenue fell 4.23% to $4.73 billion, much of which was on account of lower business from clients in the life sciences sector.

However, its net profit for Q4 jumped 1.12% to $813 million and operating margin rose 40 basis points year-on-year to 21.1%. One basis point is a hundredth of a percentage point. Infosys became the second company among the top four to report a growth in operating margins. Cross-city peer Wipro’s margins expanded 100 basis points to 17.1% in the fourth quarter.

A slow start to FY26 coupled with caution by the country’s largest IT outsourcer signals that the current fiscal might just be a challenging year for the country’s $283-billion IT outsourcing industry.

Also read | Sometimes willingness to cannibalise is a strength: TCS CEO Krithivasan

"Last week, TCS called out that the demand environment weakened starting in March and continued into April. INFY echoed this sentiment and notably indicated that decision making has been impacted and customers are incrementally cautious. Segments including Manufacturing, Retail, and Ecommerce were called out as facing pressure," said Keith Bachman in a note dated 17 April.

"We believe IT services are often looked to as a source of funds in times of budget cuts. If we enter a recession over the next few quarters, then we think IT services growth will be pressured across the board," said Bachman, calling Infosys's performance as "poor."

Shareholder thumbs-down

Meanwhile, shareholders have given a thumbs down to the performance of three of the country’s four largest IT outsourcers. Infosys’s shares on the New York Stock Exchange fell 3% to $16.08 a piece during pre-market trading on Thursday.

Wipro’s shares fell 3.19% on the New York Stock Exchange to $2.73 a piece on Wednesday. Even India’s largest IT outsourcer, TCS, closed 1.8% lower at ₹3,232 a piece on BSE, a day after it announced its results on 10 April.

The spectre of GenAI

Experts said that IT outsourcers could face challenges from Gen AI, which threatens to eat up much of their lunch.

“We believe that generative AI will act as a deflationary force for service delivery as generative AI solutions mature,” Bachman wrote on 16 April. “Many if not most areas of supply/service delivery will be impacted including deployment, application development and maintenance (ADM), BPO, and digital agencies, in our view.”

Read this | Infosys eyes early extension, AI boost for $3-billion Daimler deal

Bachman added that companies would have to get more work to offset the Gen AI impact. “The IT services market segment remains largely a PxQ model (billing $ rate times the number of hours required to complete a task), and thus as the required work or effort to deliver a project is reduced by generative AI, IT services companies will have to grow volumes to offset the efficiency gains of generative AI,” said Bachman.

For Infosys, whose revenue grew 3.85% year-on-year in dollar terms, much of the increase in business came on the back of banks and financial institutions. Banks made up a little more than a third, or 35% of the company’s incremental revenue last fiscal. Infosys gets 28%, or $5.3 billion, of its full-year revenue from financial institutions.

In terms of headcount. Infosys increased its workforce by 6,338 to end FY25 with 323,578 employees. This is in line with peers TCS and Wipro, which added 6,433 and 732 employees, respectively in the previous fiscal year.

And read | Infosys investors blow hot and cold on Q3 revenue beat, guidance revision