The selloff intensified after the company’s latest quarterly results. Shares fell nearly 7% in a single session on Friday following the announcement, taking the year-to-date decline to about 30%. Infosys now trades at a market cap of around Rs 4.9 lakh crore, a sharp drop for a company that was long considered a bellwether for India’s IT sector and bluechip Nifty index.
The fall has altered the broader market hierarchy. Insurance Life Insurance Corp (LIC) has entered the top 10 list with a value of Rs 5.1 lakh crore, while Tata Consultancy Services (TCS) has also lost ground, slipping out of the top five, signalling a broader de-rating of IT stocks.
The immediate trigger for the latest selloff was not weak earnings, but weak expectations. Infosys reported revenue of Rs 46,402 crore in the March quarter, up 13% year-on-year, while net profit rose to Rs 8,501 crore, beating estimates.
However, the company’s guidance for FY27 — 1.5% to 3.5% revenue growth in constant currency — fell short of market expectations and reinforced the view that the slower growth phase is here to stay for a while.
Analysts say the issue is structural rather than cyclical, which is even more concerning. Axis Securities said discretionary spending remains subdued as clients prioritise cost optimisation and vendor consolidation. “Demand remains muted across sectors as clients focus on resilience and cost efficiency,” the brokerage said, adding that growth is now increasingly tied to productivity-led transformation rather than expansion spending.
This shift has direct implications for IT services firms. Traditional revenue streams tied to large transformation deals are slowing, while new demand is emerging in AI and automation.Infosys has been actively investing in AI, including platforms such as Topaz and partnerships with global technology players. The company has also deployed AI tools at scale internally, with over 30,000 developers using productivity platforms. These initiatives are beginning to generate new business opportunities, particularly in data, cloud and automation-led services.
Yet, analysts caution that AI is a double-edged sword. HDFC Securities said while AI is creating new revenue streams, it is also compressing existing ones. “AI-led productivity gains are being passed on to clients, leading to deflation in the core business,” the brokerage said. This dynamic is effectively offsetting incremental growth from new AI-led deals.
The demand environment remains uneven across sectors. Financial services and energy-related segments are showing resilience, supported by ongoing investments and outsourcing trends. However, manufacturing, retail and telecom are still cautious, impacted by macro uncertainty, geopolitical tensions and weak consumer demand.
Large deal momentum has been a bright spot. Infosys signed $14.9 billion worth of deals in FY26, up 24% year-on-year, with more than half being net new contracts. Analysts say this indicates that clients are still committing to long-term projects, even as near-term execution timelines stretch.
Elara Securities remains relatively constructive, arguing that the company is entering FY27 with better visibility on client behaviour. The brokerage pointed to improvements in revenue per employee and EBITDA per employee as indicators of operational efficiency. However, it also trimmed earnings estimates and lowered its price target, aligning expectations with the revised growth outlook.
Valuations have adjusted accordingly. The stock now trades at around 18 times forward earnings, down from earlier multiples. Beyond near-term earnings, investors are also grappling with a larger question: how AI will reshape the IT services business model. The concern is not just about slower growth, but about structural compression in revenue as automation reduces the need for traditional services.
This risk is still evolving, but it is already influencing investor behaviour. Global peers have also flagged similar trends, suggesting that the industry is entering a phase where growth will be harder to achieve and margins more difficult to sustain.
For Infosys, the challenge is to navigate this transition without sacrificing profitability. The company has taken steps such as exiting margin-dilutive deals and focusing on higher-value services, but the impact of these moves will take time to reflect in financial performance.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)