Infosys Stock Target Hiked: If Narayana Murthy-Led Tech's Q1 Is Solid, Then Why Are Infy Shares Falling?

Narayana Murthy's Infosys stock price traded on a bearish note despite solid Q1 earnings, raising FY26 revenue guidance at the lower end, and a positive outlook from brokerages. The share price tumbled by at least 1.4% and traded near its intraday low. According to one of the experts, the second half is weak for the overall IT sector, and deal ramp-up could provide less room for improvement. Additionally, sell-offs occurred due to guidance that was softer than expected.

Infosys Share Price:

At the time of writing, Infosys' stock price traded at Rs 1555.20 apiece, down by 1.22%. The stock was down by 1.4% to hit an intraday low of Rs 1552.45 apiece.

Infosys' market cap is around Rs 6,46,280.19 crore.

"We believe the revenue cannibalisation through Enterprise AI and Agentic AI has been instrumental in supporting the client-centricity to drive efficiency and productivity. Additionally, the company's wider spectrum of offering supports active participation in vendor consolidation opportunities. On margins, the company executed well at the gross level (+70bpq QoQ) despite the compensation revision in Q1. However, the continued investments in fueling the S&M engine created pressure at the EBIT level (-20bps QoQ). We expect the lower proportion of passthrough will be margin supportive; however, H2 weakness and deal ramp-up would provide less room for improvement," said Pritesh Thakkar, Research Analyst at PL Capital.

Infosys Q1 Results:

During Q1FY26, Infosys reported a 1.6% YoY decline in consolidated net profit to Rs 6,921 crore. While Q1 PAT was up by 8.7% QoQ. However, the key positive factor was its revenue at Rs 42,279 crore, registering growth of 3.3% YoY and 7.5% QoQ, better than its rivals like TCS, HCL Tech and others.

Also, in the quarter, Infosys delivered $4,941 million in Q1 revenues, year-on-year growth of 3.8% and sequential growth of 2.6% in constant currency. Operating margin was at 20.8%. Free cash flow generation was strong at $884 million, 109.3% of net profit. TCV of large deal wins was $3.8 billion, with 55% net new. ROE improved by 140 bps to 30.4%.

Salil Parekh, CEO and MD said, "Our performance in Q1 demonstrates the strength of our enterprise AI capabilities, the success in client consolidation decisions, and the dedication of our over 300,000 employees," adding, "Our large deal wins of $3.8 billion reflect our distinct competitive positioning and deep client relationships."

For FY26, Infosys increased its lower-end guidance to 1-3% from earlier 0-3%. However, it maintained the operating margin guidance to 20%-22%.

Infosys Q1 Results The Good & Ugly!

Solid Growth: The revenue growth performance (+2.6% CC QoQ) was above our estimates (+2.2% QoQ CC), attributed to broad-based growth in verticals and geographies. The BFS strength continued through this quarter as well, the mega deal within the segment further validates the healthy momentum in the vertical, as per Pritesh Thakkar, Research Analyst at PL Capital.

Cautious Revenue Guidance: On the back of strong Q1FY26, Infosys has revised up its lower end of revenue guidance from 0-3% to 1-3% for FY26E. However, the company refrained from revising upper end of guidance as the demand environment still remains uncertain led by unresolved tariffs & geopolitical issues weighing on client sentiments & resulting in cautious discretionary spending & delays in decision-making, as per Choice Institutional Equities.

AI Focus Key Driver: Impressively, INFO improved realisations further, on top of 3.5% increase in FY25. Project Maximus and improved adoption of its enterprise AI platform explain that. Productivity improvement from enterprise AI platform is not only helping INFO drive non-linear revenue, but also improve win ratio in vendor consolidation scenarios. 44% QoQ increase in deal wins (USD 3.8bn), including a mega deal, offers evidence, as per JM Financial.

H2 Demand Is Challenging? In its note, Nuvama said, "We expect the demand environment to remain challenging for the next one-two quarters due to macro uncertainty."

But AI to the rescue? According to analysts at Choice Institutional, as macroeconomic headwinds gradually subside, rising client interest in AI-led transformation & cost-efficiency initiatives is expected to drive better growth in H2FY26 and meaningful acceleration in growth from FY27 onwards.

BUY Infosys?

"We expect Revenue/ EBIT/ PAT to grow at a CAGR of 7.4%/ 11.0%/ 10.7% over FY25-28E and revise our rating to 'BUY'. We roll forward to FY28 estimates & consider average of FY27E & FY28E EPS of INR 82.3, implying a PE multiple of 22x (maintained) to arrive at our Target Price of INR 1,810," said Choice Institutional's note.

Nuvama is also positive on medium-to-long term outlook, as technology debt is very high for enterprises, which will warrant revival in spending as macro improves. Infosys appears to be well placed to capture that opportunity. Valuations, at 21x FY27PE, are not expensive either. Maintain 'BUY/SN'. Nuvama raised its target on Infosys to Rs 1,850 from earlier 1,700.

JM's note added, "we now move our FY26E organic cc growth to 2.4%, closer to the (revised) upper-end. Marginal cut to margin estimates keep EPS largely unchanged. But improved confidence on numbers should drive re-rating. We retain BUY with INR 1,840 TP."

But PL stays on ACCUMULATE rating but raised target. Analyst here said, "We are baking revenue growth of 2.4%/6.0% CC YoY along with margin improvement of 10bps/50bps YoY in FY26E/FY27E, respectively. We retain our "ACCUMULATE" rating with TP of Rs. 1,750 (earlier Rs. 1,680)."

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