Infosys has remained on Emkay Global Financial Services’ radar as the research house sustained its BUY rating amid a steady yet cautious performance in Q2FY26. The brokerage anticipates stability with accelerated large-deal traction and robust digital momentum, while remaining wary of subdued guidance for the second half. With a target price of Rs 1,650, the firm sees a potential upside of approximately 12% from the current market price of Rs 1,472, valuing the stock at 21x Sep-27E EPS.

The report, titled “Steady quarter; subdued H2 guidance,” emphasizes Infosys’ stable margins, continued investments in AI-powered transformation, and resilient deal wins despite macroeconomic headwinds. Emkay expects returns to normalize toward historical averages as productivity projects mature and automation initiatives translate into margin expansion.

Strong Q2 Performance, Margins Hold Steady

Infosys reported a 2.7% QoQ (2.2% constant currency) revenue growth to USD 5.1 billion, aligning with Emkay’s projections. EBIT margin expanded modestly by 20 bps to 21%, a slight miss compared to the 21.3% estimate.

Revenue Drivers:
Growth in the quarter was led by manufacturing (+6.6%), hi-tech (+8.6%), and BFSI (+5.4%), while retail (-2.3%) and life sciences (-10.5%) lagged. Contributions from Project Maximus—focusing on rate-per-project enhancement and lean automation—added 30 bps to margins.

EBIT Margin Factors:
Tailwinds from currency movement (60 bps) were partly offset by higher post-sales costs and subcontracting (-70 bps). Nevertheless, with an operating margin range of 20-22% maintained for FY26, Emkay expects operational efficiency and cost discipline to support profitability.

Large Deal Momentum and Strategic Wins

Infosys signed 23 large deals during Q2 with a combined total contract value (TCV) of USD 3.1 billion, 67% of which were new engagements. Further boosting its pipeline, the company secured a USD 1.6 billion mega-deal with the UK’s NHS, fully net-new and expected to ramp up within FY26.

Sector-Wise Insights:

BFSI: Momentum improved in mortgages and wealth management, supported by recent rate cuts.

Manufacturing: Continued focus on automation and app rationalization, though trade risks persist.

Hi-Tech: Cost optimization trends dominate, yet selective GenAI opportunities are emerging.

Retail: Cautious stance due to tariff uncertainty; focus shifting to productivity improvements.

Energy & Utilities: Investing heavily in AI-led grid modernization.

AI & Generative AI Integration Accelerating

Infosys doubled down on AI through its Topaz platform, blending AI and human intelligence for enterprise-scale transformation. The company has executed over 2,500 AI/GenAI projects globally and more than 200 agentic AI solutions.

Frameworks in Focus:

Services.ai: Accelerates IT and operations using hybrid AI models.

Client.ai: Enables AI-driven enterprise transformation across industries.

Management believes that modernization fueled by AI, improved use-case maturity, and large-deal integrations will create long-term structural growth beyond FY26.

Guidance Moderated for H2FY26

Infosys trimmed its FY26 constant currency growth guidance to 2-3%, reflecting -0.2% to -1.5% sequential contraction expectations in the second half due to furloughs and calendar effects.

Management Commentary:
The company stressed that the outlook excludes revenue contribution from the upcoming Telstra JV (expected in H2FY26) and acknowledged ongoing macro uncertainty despite easing interest rates.

Dividend Declaration:
A dividend of Rs 23 per share was announced, underscoring the company’s strong cash position and shareholder return focus.

Key Financial Metrics and Valuation

These metrics demonstrate a steady margin trajectory and above-industry FCF generation. Despite muted earnings momentum in FY25, Emkay foresees EPS growth rebounding to near 10% in FY26, supported by stable pricing, automation savings, and an improving deal mix.

Stock Performance and Valuation Outlook

Infosys’ stock has lagged the benchmark Nifty-50 by over 25% in the past year, reflecting subdued investor sentiment around discretionary IT budgets. Nevertheless, the brokerage maintains optimism, underpinned by a healthy order pipeline and valuation comfort.

Valuation Highlights:

Current P/E (FY26E): 20.8x

12-month fair value: Rs 1,650

Investment horizon: 12 months

Upside potential: +12.1%

Analyst Perspective and Sector Read-Through

Emkay’s analysts, led by Dipeshkumar Mehta, reaffirmed the long-term structural strength of Indian IT driven by digital transformation, automation, and AI-infused delivery models. The firm acknowledged near-term margin challenges but expects improvement as Infosys shifts to nearshore and offshore execution models, reducing dependency on U.S. H-1B visa costs.

Strategic Takeaways:

Large-deal pipeline remains robust with a balanced geographic mix.

Moderation in attrition (14.3%) signals workforce stabilization.

Greater localization to aid long-term margin expansion.

AI-led modernization poised to be a secular revenue driver over FY26–28.

Emkay’s Investment Call

Emkay Global retains its BUY stance on Infosys with a target price of Rs 1,650, citing structural resilience, strong cash flows, and industry leadership in AI-based enterprise transformation.

The brokerage notes that, while macro uncertainty and discretionary spending cuts in developed markets might limit near-term growth, Infosys’ execution consistency, a net cash of Rs 361 billion, and compelling valuation multiples anchor its bullish thesis.

Investor Levels to Watch

Conclusion: Steady Hand Amid Uncertain Skies

Infosys continues to chart a pragmatic course amid global headwinds, placing calculated bets on automation, AI, and large-deal expansion to sustain growth. While H2FY26 may remain soft, Emkay believes the company’s operational agility and disciplined capital allocation justify continued investor confidence.

Bottom line: At current levels, Infosys offers an attractive risk-reward profile for investors seeking moderate growth with defensive stability within India’s IT services space.