Detailed Narrative
Infosys reported a robust performance for the second quarter of fiscal year 2026 (July-September 2025), demonstrating resilience amidst an uncertain global economic environment. Revenues for the quarter grew by 2.2% sequentially and 2.9% year-on-year in constant currency terms, crossing the $5 billion mark for Q2 and $10 billion for the half year. This growth was broad-based, with four out of five large industry verticals and three out of four geographies growing year-on-year in constant currency. Notably, Financial Services and Manufacturing sectors each grew above 5% year-on-year, and Europe also saw growth exceeding 5%.
Profitability saw a positive trend, with the operating margin expanding by 20 basis points sequentially to 21% in Q2. H1 FY26 gross margin remained strong at 30.8%, flat year-on-year despite compensation headwinds, attributed to the ongoing success of Project Maximus. The company's cash flow generation was exceptional, with free cash flow reaching $1.1 billion, representing 131% of net profit, marking the sixth consecutive quarter above 100% conversion. Infosys also announced a buyback of INR 18,000 crores at INR 1,800 per share, pending shareholder approval, and approved an interim dividend of Rs. 23, a 9.5% increase over FY25.
Strategic initiatives, particularly in Artificial Intelligence (AI) and large deal acquisitions, were key drivers. Infosys secured large deals totaling $3.1 billion in Q2, with 67% being net new work. This was further bolstered by a mega deal worth $1.6 billion announced shortly after the quarter's close, specifically with U.K. NHS, focusing on complete transformation and AI integration. The company highlighted its leadership in enterprise AI, with over 2,500 Generative AI and AI projects underway and 90% of its employees being AI-aware. Investments in forward-deployed engineers and AI-driven solutions are accelerating client transformations, with examples like a multi-agent invoice automation solution unlocking $50 million in incremental cash flow.
Looking ahead, Infosys revised its full-year FY26 revenue growth guidance upwards, from 1-3% to 2-3% in constant currency terms, reflecting increased confidence in its performance. The operating margin guidance for FY26 was maintained at 20-22%. Management acknowledged that the second half of the fiscal year typically experiences seasonal softness due to fewer working days and furloughs. Despite this, the company remains optimistic about its strong deal pipeline, particularly in cost optimization, vendor consolidation, and AI-driven productivity. Infosys plans to hire close to 20,000 freshers this year, having already onboarded over 12,000 in the first half, indicating strong demand visibility.
However, the macro environment continues to present uncertainties, with some markets experiencing growth alongside inflation and constrained job creation, while others face cost constraints. The company is actively addressing the evolving H-1B visa landscape through its localization strategy, focusing on local hiring and expanding nearshore centers across geographies like the U.S., Canada, Mexico, and Europe. While management did not provide specific numbers on H-1B visa usage or AI revenue contribution, they emphasized their commitment to client delivery continuity and their disciplined approach to large deals to maintain margin profiles. The company also noted that the legal framework for liabilities in AI partnerships is still evolving, requiring careful navigation.