Infosys Limited Reports Q2 FY26 Earnings with Revised Revenue Outlook

Overview of Q2 FY26 Performance

Infosys Limited (NYSE: INFY), a global leader in next-generation digital services and consulting, announced its second-quarter fiscal year 2026 results on October 16, 2025. The company delivered a robust financial performance, with revenues surpassing analyst expectations, alongside significant free cash flow generation and strategic deal wins. Despite these positive indicators, Infosys revised its full-year revenue guidance, prompting a slight decline in its stock price. Following the earnings release, INFY stock traded at $15.85, marking a 3.56% decrease as of 10:10 AM EDT.

Detailed Financial and Operational Highlights

For the second quarter ended September 30, 2025, Infosys reported revenues of $5,076 million, reflecting a 2.9% year-over-year growth and a 2.2% sequential increase in constant currency. This revenue figure exceeded Wall Street's estimate of $5.04 billion. The company maintained a strong operating margin of 21.0%, which, while representing a marginal 0.1% year-over-year decline, marked a 0.2% quarter-over-quarter improvement. Adjusted earnings per share (EPS) stood at $0.20, aligning with analyst expectations and increasing from $0.19 a year prior. Net income for the quarter reached $839 million, up from $777 million in the previous year.

A significant highlight of the quarter was the exceptional free cash flow (FCF) generation, which totaled $1.1 billion, representing a robust 131.1% of net profit and a 31.2% year-over-year increase. For the first half of FY26, FCF was $1.98 billion, demonstrating a 120% conversion rate. The company also reported strong traction in its deal pipeline, with large deal total contract value (TCV) reaching $3.1 billion, of which 67% constituted net new engagements.

Market Reaction and Analytical Context

The immediate market response saw Infosys shares decline, despite the company meeting or exceeding several key financial metrics. This reaction appears primarily driven by the revised revenue guidance for fiscal year 2026. Infosys updated its FY26 revenue growth guidance to 2%-3% in constant currency, while retaining its operating margin guidance in the 20%-22% range. This recalibration suggests a cautious outlook amidst evolving market conditions, even as the company continues to secure substantial new business and optimize operational efficiency.

Salil Parekh, MD, CEO & Director, underscored the company's consistent performance, stating:

"We have now delivered two consecutive quarters of strong growth, demonstrating our unique market positioning and client relevance. Strong deal wins, with 67% net new in Q2, reflect our deep understanding of clients' priorities to deliver value from AI in this environment."

He further elaborated on strategic investments:

"Our proactive investments, over the last three years, in embracing an AI-first culture within Infosys has ensured that our people are reskilled to thrive in a human+AI workplace. Infosys Topaz's differentiated value proposition is unlocking value at scale in every transformation program."

Jayesh Sanghrajka, CFO, emphasized the comprehensive nature of the quarterly success:

"We had robust all-round performance in Q2 - strong growth, resilient margins, very high cash generation and 13.1% EPS growth year on year in rupee terms. We continue to make strategic investments to futureproof the business with a tight focus on execution, amidst high uncertainty."

Broader Implications and Strategic Direction

The Q2 FY26 results underscore Infosys's strategic focus on securing large deals, particularly those leveraging advanced technologies like Artificial Intelligence (AI). The 67% net new component of the $3.1 billion TCV indicates strong client acquisition and an expanding market footprint, validating the company's investments in an "AI-first culture" and platforms like Infosys Topaz. The consistent strength in free cash flow generation provides Infosys with significant financial flexibility for ongoing investments and shareholder returns.

In line with its capital allocation policy, the board approved a share buyback program totaling ₹18,000 crores during the quarter and declared an interim dividend of ₹23 per share, marking a 9.5% increase over the previous fiscal year. These actions reflect a continued commitment to enhancing shareholder value.

Outlook and Key Factors Ahead

Looking ahead, Infosys's revised revenue guidance of 2%-3% for FY26 in constant currency, coupled with the maintained operating margin guidance of 20%-22%, will be a key area of investor focus. The company's ability to navigate high uncertainty while continuing strategic investments to "futureproof the business" will be critical.

Investors will closely monitor global macroeconomic trends, client spending patterns, and the competitive landscape in the IT services sector. As highlighted by the company, all future outlook statements are forward-looking and subject to various risks and uncertainties detailed in its SEC filings, including those outlined in its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The sustained success of Infosys's AI-driven initiatives and its ability to convert large deal wins into accelerated revenue growth will determine its performance in the coming quarters.