Infosys Limited

Infosys reported Q1 FY27 constant-currency revenue growth of 2.4% year on year and 1% quarter on quarter; revenue was $502 million. Gross margins improved by 60 basis points sequentially, operating margin was 21.1% (up 20 basis points sequentially), free cash flow was $955 million, and EPS was INR 19.19, up about 15% year on year. AI services revenue was 8.2% of total revenue, large deal wins were $3.6 billion with 61% net new, consolidated cash and cash investments were $3.9 billion, and the company returned more than $1 billion to shareholders through dividends. For FY27, management lowered revenue growth guidance to 1.5% to 3% in constant currency, while maintaining operating margin guidance at 20% to 22% and expecting an effective tax rate of 29% to 30%.

Salil Parekh emphasized that Infosys is seeing strong momentum in AI, with AI revenue now at 8.2% of sales and growing at a double-digit sequential pace for several quarters. He framed the business as increasingly relevant to clients’ AI, modernization, cloud and productivity needs, and pointed to Topaz Fabric, multi-model support, and frontier-engineer hiring as key parts of the strategy. His tone was confident on the long-term opportunity, but measured on near-term demand because of the uncertain macro backdrop.

Jayesh Sanghrajka said Q1 growth came in below expectations because of lower volumes, softer pricing, higher offshoring, and a one-off 50 basis point impact from a client project termination in ERS; he said the termination was fully absorbed in Q1. He highlighted margin resilience: gross margin improved 60 basis points sequentially and operating margin rose to 21.1%, helped by rupee depreciation (70 bps), project Maximus (20 bps), and intangibles amortization benefits (20 bps), partly offset by AI sales/marketing (50 bps) and the termination impact (40 bps). He also noted debt-free status, $3.9 billion of cash and investments, $955 million of free cash flow, and expected FY27 margin support from currency, project Maximus, and a lower onsite mix, partly offset by wage hikes, AI investments, and acquisition-related headwinds.

Analysts focused on why the company cut guidance despite strong large-deal TCV, whether softness and pricing pressure would carry into Q2, and how much of the AI-driven productivity ask is compressing existing work. Management said Q1 softness was broad-based in volumes and pricing, with the program termination and a European manufacturing client issue occurring toward the end of the quarter, and that these effects and higher offshoring are baked into the new outlook. On pricing and AI deflation, management said they are still seeing net price increases but not as much as initially expected, and that they do not disclose the external magnitude of compression. On deal conversion, management said large deal terms remain mostly 3 to 5 years, but AI-driven productivity expectations are affecting economics at renewal, and Infosys will walk away from uneconomic deals rather than underwrite weak returns.