Infosys' better-than-expected Q3 earnings ushers optimism among brokerages

Infosys witnessed strong deal wins in Q3 which prompted the management to revise its revenue growth guidance to 4.5-5 percent.

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26 Aug, 2025 12:21

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Brokerages remain optimistic about Infosys, buoyed by the company’s strong performance in the October-December quarter, which exceeded expectations in what is typically a seasonally weak period. Alongside the earnings beat, Infosys raised its FY25 revenue growth guidance for the eighth time in nine quarters.

Brokerage firm Bernstein applauded the information technology major's all round beat across revenue, margin and earnings in Q3, touting it as the best earnings of the season so far. The firm attributed the earnings beat to discretionary recovery and reaffirmed its 'outperform' rating on Infosys with a price target of Rs 2,330, noting a favourable outlook for large-cap IT services.

Echoing a similar sentiment, Nomura reiterated Infosys as its top pick in the large-cap IT services space in India, bolstered by the company's all-round performance and guidance lift in FY25. Nomura has a 'buy' call on the stock with a price target of Rs 2,220.

Meanwhile, HSBC also highlighted green shoots in Europe’s banking sector and US retail as positive indicators for Infosys’ growth trajectory. The brokerage retained its 'buy' rating, setting a target price of Rs 2,120.

Infosys reported a Q3 large deal Total Contract Value (TCV) of $2.5 billion, with 63 percent being net new, marginally surpassing the previous quarter's $2.4 billion despite seasonal weakness. "Improved deal pipeline give us greater confidence as we look ahead," said CEO Salil Parekh. It was the strong deal wins in Q3 that prompted the management to revise its revenue growth guidance to 4.5-5 percent in constant currency terms for FY25. The previous guidance had estimated revenue growth in the range 3.75-4.5 percent for FY25.

Morgan Stanley also turned optimistic over improving deal wins and the management's constructive commentary on discretionary spending. "Net headcount addition drives view of reasonable acceleration in revenue growth," the brokerage stated. Meanwhile, it also noted that free cash flow to net income for Infosys was one of the strongest in last several years. Accordingly, it retained its 'overweight' stance on Infosys, with a price target of Rs 2,150.

However, Jefferies flagged that while FY25 revenue guidance was raised to reflect the Q3 beat, the unchanged ask rate for Q4 signals potential seasonal weakness. BoFA Securities expects a 1 percent sequential revenue decline in Q4, driven by potential reductions in third-party items or cautious management positioning.

During the post-earnings call, Infosys management also acknowledged the possibility of a weaker Q4, citing factors such as the reversal of higher third-party revenue contributions from Q3, furlough impacts, and fewer working days. These anticipated headwinds are already factored into the FY25 guidance, the management said.

Despite the strong Q3 results, lingering concerns over a possible decline in Q4 revenues likely triggered a near 6 percent slump in the American Depository Receipts (ADRs) of Infosys, listed on the New York Stock Exchange (NYSE) on January 16.

Tracking this, shares of the IT major may also open lower in trade today, if the performance of Infosys ADRs are anything to go by. However, Morgan Stanley noted that Infosys shares are likely to find support around the five-year average two-year forward free cash flow multiple, providing some downside protection.

Infosys had released its Q4 numbers after Indian market hours on January 16 and its shares ended over 1 percent lower at Rs 1,928.45 on the NSE.