Bengaluru: Indian information technology services company Infosys has lowered its revenue growth forecast for the 2026 to 2027 financial year, citing weak client demand, pricing pressure and changes in the technology services market. The announcement raised concerns about the company's growth prospects as its shares fell in early trading on October 26.
Infosys revised its expected revenue growth to between 1% and 2% in constant currency terms, compared with its previous forecast of 1.5% to 3%. The revised outlook followed the company's second quarter results, announced on October 23, and reflected the challenges facing its business as customers control spending and demand greater efficiency from technology service providers.
For the quarter ended September 30, Infosys reported revenue of $5.145 billion, representing year on year growth of 1.5% in constant currency terms. Revenue increased 1.2% compared with the previous quarter. The company's operating margin stood at 21%, while net profit under International Financial Reporting Standards was $817 million, down 2.5% from a year earlier.
Infosys shares fell 2.7% in early trading on October 26 following the announcement. The decline reflected investor concerns about the weaker outlook and the possibility of continued pressure on the company's growth in the coming quarters.
The company maintained its operating margin forecast of between 20% and 22% for the full financial year, indicating that it expects to manage costs and protect profitability despite the weaker revenue outlook.
One of the main challenges for Infosys is subdued spending by customers in important markets, particularly retail and high technology. Businesses in these sectors have been cautious about technology investments, affecting demand for services provided by IT companies.
The company's results showed significant differences in performance across its business segments. Revenue from high technology declined 17.3% year on year, while retail revenue fell 7.7%, both in constant currency terms. These declines contrasted with stronger performance in areas such as life sciences and energy, utilities and related services.
North America, which accounted for 54.6% of Infosys' revenue during the quarter, recorded a 1.5% decline in constant currency revenue compared with the same period last year. Europe and the rest of the world reported growth, helping to offset some of the weakness in the company's largest market.
Pricing pressure has also become a concern as customers expect technology service providers to deliver more work at lower costs. Competition among IT companies has increased, making it harder for providers to secure higher prices for their services.
Another factor affecting the business is the expansion of global capability centres, through which multinational companies establish their own technology and business operations in countries such as India. These centres allow companies to carry out more work internally instead of relying entirely on external service providers.
Analysts have also cited Infosys' exit from a major European manufacturing contract as one factor weighing on growth. Changes in contract volumes and lower than expected price increases have added to the challenges affecting its revenue outlook.
Despite these difficulties, Infosys reported continued expansion in its artificial intelligence business. AI services accounted for 10.5% of the company's total revenue during the quarter, with revenue from these services increasing 29% compared with the previous quarter.
The company also reported large deal contract value of $5.2 billion during the quarter. Of this amount, 62% was classified as net new business, indicating that a substantial share of the contracts represented new opportunities rather than extensions or renewals of existing work.
However, growth in AI services and new contracts has not yet translated into stronger overall revenue growth. Large contract announcements do not immediately translate into recognised revenue, as projects must be implemented and delivered over time.
The rapid adoption of AI is changing the traditional IT services business. While companies need help implementing AI systems and integrating new technologies, automation can reduce the amount of human labour required for certain tasks. Customers may then expect service providers to pass on some of these productivity savings through lower prices.
This creates a challenge for companies such as Infosys, which must develop new AI services while protecting revenue from their existing businesses. Weak demand, pricing pressure and changing customer requirements are also contributing to the industry's difficulties, meaning AI alone cannot explain the slowdown.
Other major Indian technology companies reported stronger revenue growth in the same quarter. Tata Consultancy Services recorded year on year constant currency revenue growth of 2.8%, while HCLTech reported growth of 2.6%. Infosys' growth rate of 1.5% was lower than both companies, although differences in their business operations and customer portfolios mean that the figures do not by themselves establish a loss of market share.
Infosys' revised forecast highlights the uncertainty facing India's technology services industry as businesses reassess spending and competition intensifies. The company's growing AI business and large contract wins offer opportunities for future expansion, but converting those opportunities into sustained revenue growth remains a challenge.
Investors will be watching whether demand improves in key markets, whether the company can secure better pricing and whether its new contracts begin contributing more significantly to revenue in the coming quarters. The company's ability to balance opportunities driven by AI with pressure on its traditional services will be central to its performance during the remainder of the financial year.