Infosys is bullish on large deals, sees Fed rate cut and better macros boosting outlook

In a recent interaction with Kotak Institutional Securities, Infosys CEO and MD Salil Parekh has expressed confidence that the FY26 target set by the company with regard to technology spending will likely improve in coming months. In a note dated August 19th by the brokerage firm, it said that the company expects enterprises to continue to focus on cost optimization and vendor consolidation and with its broad set of offerings and AI capabilities placing it comfortably in such deals.

Infosys also sees large transformation programs, which have been paused due to macroeconomic uncertainties, to also come back, along with a renewed stability when it comes to the demand environment. It also expressed hopes that the potential interest rate cuts by US Federal Reserve could spur economic growth with clients committing to larger programs.

In July, IT bellwether had revised its guidance, from the earlier guidance of 0% to 3%, to 1% to 3% growth in constant currency terms while maintaining the margin guidance at 20% to 22%.

AI and other focus areas

With AI adoption by clients largely being led by efficiency and productivity, Infosys said the use cases turning into revenue is yet to go mainstream.

“Infosys believes that incumbents can partner with clients, setting the right expectations by leveraging their contextual knowledge of enterprise processes,” the note said.

The company has partnered with top ten of its top 20 clients in the financial services vertical and expects to benefit in any consolidation deals. With tweaks to its existing delivery structure, the company also expects a greater participation in clients’ AI initiatives, where there is a greater need to customize offerings in specific domains.

“Additionally, most productivity benefits from AI adoption may get passed on to clients in the current demand environment. Infosys has launched SLMs for the financial services vertical, which could be a differentiator to engage with clients. The pricing model is primarily transaction-based, with a select set of clients,” the note further said.

Infosys also sees its healthcare vertical having a potential to grow faster and it M&A strategy in 2025 to largely centre around the areas of cybersecurity, E&U consulting and cloud services in the Australia and NZ region (ANZ), with aims at strengthening capabilities in cloud and SaaS partnerships.

As a part of its focus on the ANZ region, Infosys also recently announced the acquisition of 75% stake in Versent Group, a digital transformation solutions provider, and a wholly owned subsidiary of Telstra Group. The joint venture where Telstra will continue to hold 25% stake will enhance access in the Australia region for its cloud and digital offering.

Kotak Securities said that it maintains a BUY rating on the stock, but sees the higher exposure to discretionary services as a risk compared to peers.

“However, the execution has been reasonable, leveraging its full stack capabilities to increase managed services revenues contribution to track better-performing peers closely, despite an unfavourable business mix. The company is well-positioned to capitalize on the Gen AI opportunity over the medium term, with Topaz platform offering, over 85% of employees are AI-ready, with the level of expertise ranging from being AI aware to being AI expert,  investments in launching SLMs and  being ranked as an AI leader by various industry analysts”, the note further said.