---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 225728
conversation_id: b627c067-c3a9-46ec-9337-30c2981e555e
citations: 16
created: 2026-05-31 21:09:28Z
---

# What catalysts could drive upside/downside for Infosys in the next 12–18 months?

# Infosys (INFY) — Upside / Downside Catalysts Over the Next 12-18 Months

**Subject**: Infosys Ltd. (NSE: INFY / NYSE: INFY) — large-cap Indian IT services, FY ends March.
**Setup**: FY26 closed with $20bn+ revenue, 3.1% CC growth and 21% adj. operating margin; FY27 guidance is **1.5%-3.5% CC** revenue growth with **20%-22%** operating margin [2]. CLSA covers the name **O-PF, TP Rs1,861 (~+14% upside from Rs1,633)** [11]. The 12-18 month window therefore spans FY27 (Apr-2026 → Mar-2027) and the first half of FY28 — the inflection where the V-shaped recovery narrative either confirms or breaks.

---

## I. Upside Catalysts

### 1. Conversion of the FY26 large-deal backlog into revenue (highest-conviction catalyst)
- FY26 closed with a record **$15bn of TCV in 96 large deals, 55% net new, including three mega-deals** [3]. The full-year TCV was **$14.9bn, up 24% YoY** [1].
- Infosys explicitly attributes growth acceleration in FY27 within Financial Services and EURS verticals to these signings ramping [2]. The longer the H2-weighted ramp ports back into H1 FY28, the more multi-year visibility builds.
- **What flips the upside**: if quarterly book-to-bill stays >1.0 and net-new % rebounds from FY26-low levels, the upper end of the 1.5-3.5% guide moves into reach and the band is typically tightened upward mid-year (Infosys did this each quarter of FY26).

### 2. M&A-driven inorganic lift (near-term, mechanical)
- Three acquisitions are either closed or pending: **Stratus (closed pre-guidance), Versent JV, and Optimum Healthcare** [5]. CLSA flagged the closure of two acquisitions specifically as a potential lift to FY26 revenue growth guidance [8].
- Versent (Australia, AWS Premier) and Optimum Healthcare (US, US Medicaid/Medicare services) add **~0.7% to full-year annualized margin headwind** [5] but contribute incremental revenue once closed — a clean guidance-raise trigger when included.

### 3. AI services scaling, with pricing premium
- CFO confirmed **"AI projects come at a better pricing and therefore it reflects in a better margin"** [6] — AI services already structurally mix-up gross margin despite premium-talent costs.
- Strategic partnerships span **Anthropic, OpenAI, Google Gemini, NVIDIA, Microsoft, AWS, Google Cloud, Intel; 30,000+ GitHub Copilot developers deployed** [1]. CLSA's competency matrix scores Infosys **10/10 on Nvidia stack capabilities — tied with TCS/Wipro/TechM and ahead of HCLT** [15].
- Concrete client proof-points cited by mgmt (Ralph Lauren conversion +12%, Hertz 60% cost/timeline reduction on COBOL→microservices, bp 50 AI agents delivering 95% payment accuracy / 18% IT-ops efficiency) [1] are the kind of case-study evidence that converts pipelines.

### 4. BFSI re-acceleration + US CY26 budget uplift
- **"CY 2026 budgets are expected to grow in US"**, FS for FY26 already grew 4.4% (above company avg) and Infosys is "strategic AI partner for 18 out of the top 20 clients in this vertical" [3].
- CLSA's channel checks: "Legacy modernization is happening much more easily due to Gen AI particularly for banks. This is a new volume opportunity for IT vendors like Infosys… BFSI has continued momentum and has been more resilient" [9].
- Accenture's Jun-2025 beat-and-raise (FY25 guide lifted to 3-4% from 2-4%, BFSI growth strong) is the leading read-across that gives confidence in the BFSI lane reopening [10].

### 5. EURS (energy / utilities / resources) — structural tailwind
- **80% of EURS large-deal TCV in FY26 was net new** [4]. The driver is unusual for IT services: utilities are facing structurally higher demand from "grid constraints, renewable integrations and acceleration electricity needs for data centers" [4] — i.e. Infosys is an indirect AI capex beneficiary via utility-client modernization.

### 6. FII positioning / valuation rerating
- CLSA's US/UK/EU roadshow feedback (Jun-2025): **"Majority of EM-focused investors are underweight Indian IT, with INFY being the most held name across majority of the funds"** [12]. The **"underweight stance by FIIs in US/UK/EU in Indian IT sector implies potential for more capital allocation in case demand commentary improves"** [12]. Two consecutive quarters of in-line / upgrade prints would mechanically force re-weighting.
- Valuations are at "historically attractive (last 5-yr avg)" [12].

### 7. Project Maximus margin tailwind + INR depreciation reinvestment optionality
- Margin gains from Project Maximus + INR depreciation in FY26 were **reinvested into talent, AI partnerships, and S&M (+40bps)** [2]. If management chooses to bank — rather than reinvest — these benefits in FY27, headline margin would compress less than guided, surfacing 50-100bps of EPS upside.

---

## II. Downside Catalysts

### 1. The European manufacturing client ramp-down — the largest single drag baked into guidance
- A **75-100bps headwind** to FY27 growth from a single large European manufacturing client — combination of "challenging macro environment" and Infosys's "conscious decision to not pursue a certain deal that were not aligned to our return expectation" [5][7].
- If the ramp-down accelerates beyond modeled levels (Marelli-type bankruptcies across European auto suppliers; further tariff escalation), the headwind widens. CLSA channel checks flag continued "auto manufacturing… weak" [9].

### 2. Onsite-mix compression — the structural deflation engine
- A **further 75-100bps revenue-growth drag from onsite-mix reduction**; the exit trajectory already shows **40-50bps offshore-shift visible in the existing book** [5][7]. This is the deflation that AI productivity passes back to clients — and **the CFO explicitly stated "the productivity will get passed back to the client largely"** [2].
- The risk: if the offshore-shift pace re-accelerates beyond the 40-50bps embedded base, the lower end (1.5%) of guidance is at risk; in a worst case, negative organic growth becomes thinkable for H2.

### 3. Net-new deal % at multi-year low — pipeline quality red flag
- An analyst flagged on the call that "Percentage of net new deals came in at the lowest level we've seen in recent years" — a signal that ARR-equivalent expansion is becoming renewal-heavy rather than new-logo-heavy. Mgmt did not refute the observation. If FY27 large-deal TCV stays flat in absolute terms but net-new % continues to fall, the revenue translation ratio weakens.

### 4. Insourcing risk (Vanguard / financial services structural)
- Analysts asked directly about **"Vanguard insourcing"** as a guidance impact item [7]. Even one BFSI mega-client repatriating workloads to in-house captives/GCCs is enough to wipe out 50bps of growth.

### 5. Gen AI deflation accelerating faster than offset
- CLSA's Gen AI Access Day captured the industry conclusion: **"deflation is being observed. In the newer deals, there is consolidation due to the higher expected productivity getting baked into the deals"** [13]. If new model generations (Anthropic/OpenAI/Gemini) deliver step-function productivity uplifts faster than the share-gain offset, the existing book deflates more aggressively than expected.

### 6. Discretionary spending remains stuck — macro/tariff overhang
- Channel checks across Indian IT mgmt (Jun-2025) confirm "overall discretionary spending has not improved materially while the cost-optimisation-related theme has intensified further" [8]. The CFO's tone — "macro and geopolitical uncertainties, higher interest rates, rapid technology shifts and high competitive intensity" — keeps client decision-making slow [4]. **March 2026 saw "slower decision making"** [2], echoing the late-cycle hesitation pattern.

### 7. Retail / Hi-Tech / Communications verticals remain soft
- Retail: "consumer demand remains muted… discretionary spends under pressure" [4]; Hi-Tech and Comms are "soft" per CLSA channel checks [9]; Comms budgets "flat to negative, which is impacting discretionary spend" [4]. Combined, these three verticals make up a meaningful single-digit % drag if they don't inflect by H2 FY27.

### 8. Margin guidance lower-bound risk
- Margin band 20-22% [2] is held together by Maximus tailwinds vs. **headwinds from wage hikes (timing undecided — could be Q1 vs. Q2 toggle), productivity pass-throughs, AI investments, and ~70bps acquisition dilution** [5]. The bottom of the margin band is in play if a wage-hike-front-loading + acquisition-dilution + competitive-deflation all hit the same quarter.

### 9. Investor sentiment — V-shape thesis is not consensus
- CLSA's own roadshow feedback: **"Our view of V-shaped recovery for Indian IT sector over next 1-2 quarters… does not seem to be the base case for majority of US based investors"** [12]. The asymmetric setup — sell-side bullish, buy-side skeptical — means each disappointment quarter risks position-unwind faster than each beat triggers position-build.

---

## III. Decision Framework — What to Watch by Quarter

| Quarter | Decisive Signal | Bull Read | Bear Read |
|---|---|---|---|
| **Q1 FY27 (Jul-26)** | Guidance band tightening; book-to-bill | Tighten upward to 2.5-3.5%; B2B > 1.1 | Tighten downward to 1.5-2.5%; B2B < 1.0 |
| **Q2 FY27 (Oct-26)** | Net-new deal % rebound; one mega-deal | Net-new back >50%; ≥1 mega-deal | Net-new <40%; only renewals |
| **Q3 FY27 (Jan-27)** | CY26 US BFSI budget realization | FS YoY >6%; CY27 budget commentary positive | FS YoY <4%; CY27 commentary cautious |
| **Q4 FY27 (Apr-27)** | FY28 guidance + AI services revenue disclosure | FY28 guide ≥5% CC, AI services disclosed >10% of rev | FY28 guide repeats 1.5-3.5%; AI services not quantified |
| **H1 FY28 (Apr-Sep 27)** | European manufacturing client trough; onsite-mix stabilization | Trough confirmed; mix-headwind <30bps | Further client ramp-down; mix-drag >75bps |

---

## IV. Skew Assessment

Across the 12-18 month window the **risk-reward is balanced-to-modestly positive** at current Rs1,633 levels, with CLSA's Rs1,861 TP implying +14% upside [11]. The asymmetric features are:

- **Upside is back-end-loaded** — the deal-ramp story doesn't fully express until late FY27 / H1 FY28.
- **Downside is front-end-loaded** — the European manufacturing client + onsite-mix drag is already in guidance, with deflation surprises possible each quarter.
- The **AI services premium is the structural differentiator** but the deflation passthrough is the structural compressor — net effect is currently a wash in guidance math [2][6].
- INFY is the **default Indian IT consensus long** [12] — meaning it disproportionately catches both EM-FII re-allocation flows on positive datapoints and EM-FII underweight reinforcement on negative datapoints.

---

**Sources**
[1] Infosys Q4 FY2026 Earnings Call — 23-April-2026 (large deals $14.9bn / 24% YoY; AI strategy; Topaz Fabric; client case studies)
[2] Infosys Q4 FY2026 Earnings Call — FY27 guidance 1.5-3.5% CC; 20-22% margin; H1 stronger than H2; Maximus reinvested
[3] Infosys Q4 FY2026 Earnings Call — $15bn TCV / 96 deals / 55% net new / 3 megadeals
[4] Infosys Q4 FY2026 Earnings Call — vertical commentary (FS, EURS, retail, comms, mfg)
[5] Infosys Q4 FY2026 Earnings Call — European manufacturing client 75bps-1% drag; Stratus/Versent/Optimum acquisitions; 70bps margin dilution
[6] Infosys Q4 FY2026 Earnings Call — AI projects come at better pricing/margin
[7] Infosys Q4 FY2026 Earnings Call — Sumeet Jain (CLSA) Q&A on European client / onsite mix / Vanguard insourcing
[8] CLSA — India IT 1QFY26 (Commentary preview—status quo), 18-Jun-2025 — 607962319LinqAlpha.PDF
[9] CLSA — India IT 1QFY26 channel-check table (BFSI / Mfg / Retail / Hi-Tech / Margins) — 607962319LinqAlpha.PDF
[10] CLSA — India IT (Accenture 3Q25 read-across), 20-Jun-2025 — 607962486LinqAlpha.PDF
[11] CLSA — INFO IB target table (O-PF, TP Rs1,861, +14% upside) — 607962319LinqAlpha.PDF
[12] CLSA — Global US NDR feedback & Gen AI Access day, 10-Jun-2025 — 607961681LinqAlpha.PDF
[13] CLSA — India Gen AI Access Day Summary (deflation observed in newer deals), 24-Jun-2025 — 607962657LinqAlpha.PDF
[14] CLSA — India IT sector outlook (Nvidia 1QFY26 read-across), 30-May-2025 — 607960956LinqAlpha.PDF
[15] CLSA — Nvidia competency matrix (Infosys 10/10) — 607960956LinqAlpha.PDF
[16] CLSA — Demand commentary on muted verticals, BFSI gen-AI modernization — 607962319LinqAlpha.PDF

## Citations

- [1] **Infosys Ltd., Q4 2026 Earnings Call, 23-April-2026 8** · external
- [2] **Infosys Ltd., Q4 2026 Earnings Call, 23-April-2026 8** · external
- [3] **Infosys Ltd., Q4 2026 Earnings Call, 23-April-2026 8** · external
- [4] **Infosys Ltd., Q4 2026 Earnings Call, 23-April-2026 8** · external
- [5] **Infosys Ltd., Q4 2026 Earnings Call, 23-April-2026 8** · external
- [6] **Infosys Ltd., Q4 2026 Earnings Call, 23-April-2026 8** · external
- [7] **Infosys Ltd., Q4 2026 Earnings Call, 23-April-2026 8** · external
- [8] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>
- [9] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>
- [10] **607962486LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962486LinqAlpha.PDF>
- [11] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>
- [12] **607961681LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607961681LinqAlpha.PDF>
- [13] **607962657LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962657LinqAlpha.PDF>
- [14] **607960956LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960956LinqAlpha.PDF>
- [15] **607960956LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960956LinqAlpha.PDF>
- [16] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>

