Infosys has entered 2026 with early but credible signs of a discretionary demand revival, prompting Motilal Oswal Financial Services to reiterate its BUY rating on the stock. The brokerage sees the company at the cusp of an AI-driven growth inflection, supported by stronger deal wins, a guidance upgrade, and improving enterprise sentiment. With large contracts ramping up and artificial intelligence increasingly embedded in core services, Infosys is now positioned for a multi-year acceleration in growth and profitability.

At a current market price of Rs 1,600, Motilal Oswal has assigned a target price of Rs 2,200, implying an upside of nearly 38% over the next 12 months. The analysis from Motilal Oswal is strongly bullish compared to views on Infosys presented by other research houses in India.

3QFY26 Snapshot: Revenue Beat and Margin Stability Provide Reassurance

Infosys delivered a steady operational performance in the December quarter, exceeding expectations on revenue while maintaining margin discipline. The company reported USD 5.1 billion in revenue, representing 0.6% quarter-on-quarter growth in constant currency, ahead of Motilal Oswal’s estimates. EBIT margin stood at 21.2%, broadly in line with projections, while adjusted profit after tax rose 12% year-on-year to Rs 76 billion.

The results were achieved despite the exclusion of a one-time Rs 12.8 billion labor code–related charge, underscoring the underlying resilience of Infosys’ earnings profile. Management also highlighted early traction in discretionary spending, particularly across financial services and energy utilities.

Guidance Upgrade Marks a Turning Point in Demand Outlook

The most significant takeaway from the quarter was Infosys’ decision to raise its FY26 revenue growth guidance. Management upgraded constant-currency growth expectations to 3%–3.5%, from the earlier 2%–3% band, signaling rising confidence in deal execution and pipeline visibility.

Motilal Oswal notes that this upgrade implies 5.4% year-on-year growth in 4QFY26, laying a stronger base for FY27. The brokerage now expects Infosys to deliver organic constant-currency growth exceeding 6% in FY27, driven by an anticipated ramp-up in enterprise AI spending beginning mid-2026.

Large Deal Momentum Accelerates Sharply

Deal wins emerged as a major highlight of the quarter. Infosys reported USD 4.8 billion in large deal total contract value, representing a 55% sequential increase. Net new deal TCV rose 32% quarter-on-quarter, while the book-to-bill ratio stood at 0.9x, indicating a stable conversion environment.

A standout transaction was the USD 1.6 billion NHS contract in the UK, which is expected to support healthcare vertical growth over the coming quarters. Motilal Oswal believes the improving mix of short-cycle and AI-linked deals will help Infosys offset potential client-specific headwinds.

Vertical Performance: Financial Services and Healthcare Lead the Recovery

Growth remained uneven across verticals, but signs of normalization are increasingly visible. Financial Services posted improving discretionary demand, supported by spending across banking, payments, and wealth management. Healthcare benefited from the NHS deal ramp-up, while Energy & Utilities saw rising demand tied to AI-driven data-center investments.

Manufacturing and Hi-Tech remained relatively soft due to tariff uncertainty and cost pressures, but management expects gradual stabilization as enterprise budgets reset later in 2026.

Margins Likely to Remain Range-Bound but Defensible

Infosys’ margin performance continues to reflect a balance between productivity gains and structural cost pressures. The 20-basis-point sequential improvement in EBIT margin was driven by currency tailwinds and internal efficiency initiatives under Project Maximus, partially offset by furlough-related costs.

Motilal Oswal expects margins to remain within the 20%–22% band over the medium term, as AI-led productivity in legacy services tempers volume growth. Importantly, pricing remains accretive, with value increasingly captured through outcome-based delivery rather than headline rate increases.

AI Partnerships Signal Structural Shift in Services Model

Infosys’ partnership with AI-native firms such as Cognition marks an early but meaningful evolution in its operating model. These collaborations allow Infosys to integrate autonomous coding agents and AI platforms into modernization, maintenance, and managed services offerings.

According to Motilal Oswal, this strategy positions Infosys as a critical bridge between AI innovators and large enterprises, accelerating the transition from pilot programs to enterprise-wide AI adoption through calendar year 2026.

Valuation Comfort and Earnings Visibility Support Bullish Stance

Motilal Oswal values Infosys at 26x FY28E earnings, reflecting confidence in sustained growth and improving return metrics. The brokerage expects a USD revenue CAGR of 6.4% and an INR PAT CAGR of nearly 10% between FY25 and FY28.

The balance sheet remains robust, with strong free cash flow generation and a generous dividend payout ratio of 85%, reinforcing shareholder returns alongside growth investments.

Key Investment Levels and Outlook

Infosys remains Motilal Oswal’s top pick among tier-1 IT services companies, backed by improving demand visibility, strong deal momentum, and early leadership in enterprise AI services. While near-term risks persist around client concentration and macro uncertainty, the brokerage believes upside risks now decisively outweigh downside concerns.