Infosys ADRs tumble 6% as FY27 growth guidance cut to 1%-2%

Bengaluru: Infosys had a lacklustre Q2, with its shares falling 6% in early trade on the NYSE after it cut FY27 revenue growth guidance to 1%-2% in constant currency terms from 1.5%-3% earlier. This is the company’s weakest growth outlook in seven years, reflecting subdued volumes, pricing pressure and weakness in its mainstay market, North America, where revenue declined 1.5% year on year.The slowdown was particularly sharp in high-tech and retail, which declined 17.3% and 7.7%, respectively, in constant currency terms.Infosys CEO Salil Parekh said the weakness was driven by specific client situations rather than a broad-based slowdown across industries. “We have seen different client-specific situations in both retail and high-tech. This is not happening across all industries. We continue to see strong growth and discretionary spending in financial services, energy and utilities, and manufacturing,” he said.CFO Jayesh Sanghrajka said volumes remained subdued, while competitive intensity and clients’ higher productivity expectations had put pressure on pricing. Discretionary spending in retail and high-tech was also lower than anticipated, he said, adding that these factors had led to the guidance cut.Retail was additionally affected by a larger third-party component in the previous quarters, creating an unfavourable sequential comparison. While weakness in high-tech and retail was broadly similar across geographies, the impact was more pronounced in the US, Sanghrajka said. The company retained its operating margin guidance at 20%-22% for FY27.In dollar terms, Infosys’ revenue rose 1.2% sequentially and 1.3% year on year to $5.1 billion in the September quarter. In constant currency terms, revenue grew 1.2% sequentially and 1.5% year on year.AI was a bright spot, accounting for 10.5% of revenue and growing 29% sequentially, compared with 8.2% in the previous quarter, Parekh said. Operating margin remained flat sequentially at 21%. Post-sales customer support costs had a 70-basis-point impact, reflecting a reversal in the previous quarter followed by an expense this quarter. Acquisitions added a further 20-basis-point impact due to an extra month of amortisation.Large deals totalled $5.2 billion during the quarter, including two mega deals. One was a new seven-year contract worth more than $2 billion with a large international company, which is expected to contribute over one percentage point to revenue growth in FY28. The other was a $1 billion renewal.“Our deal pipeline remains healthy and includes other potential mega deals,” Parekh said.However, AI-driven productivity gains are also putting pressure on traditional services revenue, while competition remains intense. Parekh said Infosys would take on contracts only when they met its economic criteria. He also flagged uncertainty from geopolitical conflicts, interest-rate movements, elevated US Treasury yields and tariffs.Infosys added 4,480 employees on a net basis during the quarter, taking its headcount to around 3.2 lakh. The company hired 8,000 college graduates during the quarter and has retained its full-year hiring target of around 20,000, similar to last year. Hiring is focused on AI and other growing areas of the business.Sanghrajka said hiring plans depended on attrition, utilisation, demand and productivity gains. Attrition was around 13%, translating to roughly 45,000 employee exits annually, creating a need for lateral hiring and fresher recruitment.Utilisation stood at around 85%, which the company considers optimal, leaving limited room for further improvement. Freshers typically take six to eight months to train and deploy, requiring the company to plan recruitment in advance.Sanghrajka said increased offshoring was expected to affect growth by around one percentage point. “We have seen offshoring increase throughout the year. We also chose not to pursue a large deal with a European manufacturing client because it did not meet our return expectations. These factors have affected our growth outlook,” he said.You use AI every day. Now get your AI Quotient. Take the AIQ test.