Infosys Q1 preview: 5 key factors to watch for

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26 Aug, 2025 12:21

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As Infosys gets ready to announce its first quarter results on July 23, investors will be closely tracking signs of a turnaround at India’s second-largest IT services firm after multiple muted quarters.

With peers TCS and HCLTech struggling with weak demand, the Street will keenly follow Infosys’ commentary on deal ramp-ups, AI-led transformation and the pace of recovery in key markets.

While the Street expects Infosys to lead Tier-1 peers in revenue growth, the outlook for the fiscal remains clouded by macro headwinds and delayed decision-making cycles in client organisations.

Here are five themes to track in the Q1FY26 earnings:

Revenue Growth

Among Tier-1 IT firms, Infosys is expected to post the highest sequential growth in constant currency (CC). Brokerages Kotak, ICICI Securities and Elara have pegged CC sequential revenue growth between 1 percent and 1.6 percent, largely driven by higher billing days and strength in BFSI.

Most of this growth is organic with about 30 basis points (bps) of the 1.6 percent attributable to the recent acquisitions of The Missing Link and MRE Consulting, Kotak Institutional Equities said.

While this might prove to be a welcome turnaround after two quarters of muted performance, brokerages have cautioned against reading too much into it.

Centrum expects revenue growth to remain muted, with Infosys showing the best performance among Tier-1, citing macro uncertainty after the US tariff-related announcements.

Also read: TCS’s Q1 show misses the mark; what this means for the broader IT landscape

Guidance tweak expected

Infosys is expected to raise its FY26 revenue growth guidance from 0-3 percent earlier to 1-3 percent, factoring in the contribution from acquisitions.

Several brokerages, including Kotak and HDFC Securities, see the move as conservative, reflecting continued softness in discretionary tech spending and caution in verticals such as manufacturing and retail.

“Demand deterioration has been consistent with the companies’ expectations, though a bit lower than Street expectations,” Kotak analysts said in a pre-earnings note.

It added the muted environment is unlikely to result in a meaningful revision to full-year target.

Also read: Uncertainty cannot last long, FY26 international business revenue will be better than FY25: TCS CEO

Steady margins

Operating margins are expected to remain flat sequentially, supported by currency tailwinds and some leverage from revenue growth.

Q4 margins had benefited by 80 bps from reversals and additional tailwinds from lower variable compensation payout, Kotak said.

Q1 margins will likely be flat sequentially despite robust revenue growth due to wage hike for a few senior employees and large deal transition costs.

Infosys is likely to maintain its FY26 EBIT margin guidance at 20-22 percent, the range it has held for several years.

Also read: HCLTech plans restructuring, to reduce overseas headcount in FY26

Deal wins

Infosys is expected to report large deal TCV of around $3 billion, according to brokerages, while steady, the figure would reflect a year-on-year decline.

The market will also closely watch annual contract value (ACV), especially as many deals signed in recent quarters are consolidation-led or cost takeout in nature.

“We expect EBIT margin to decline around 25bps on headwinds from senior management wage hike, large deal ramp-up cost and increase in SG&A on account of marketing events conducted in US,” ICICI Securities wrote in its research note.

The focus will be on the quality of the pipeline, particularly in GenAI-led or transformation-focused deals, which could provide longer-term visibility.

Also read: No strong co-relation yet that AI impacts hiring: Wipro CEO Pallia

AI, GenAI traction

Brokerages continue to flag Gen AI as a medium-term growth lever for Infosys but believe that the revenue impact is still limited. AI adoption is gradually shifting toward the production phase from PoCs focused on select use cases.

The Street will look for clarity on actual revenues being generated from these programmes beyond early pilots.

Gen AI-driven automation and its impact on pricing and project volumes will be an important area for management commentary, especially as clients look to cut costs amid tariff-linked uncertainties, ICICI Securities said.

Infosys may lead the Tier-1 pack in Q1 but the bar is low.