---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 176353
conversation_id: 5aa156ad-c337-4b19-95d2-635c56fc92f5
citations: 14
created: 2026-05-31 21:09:08Z
---

# What are the key risks to Infosys’s growth trajectory?

# Key Risks to Infosys's Growth Trajectory

Infosys's FY27 revenue guidance of **1.5–3.5% YoY in constant currency** [8] sits below the FY26 organic exit run-rate of ~2.4% organic, signalling that management itself is flagging a more constrained outlook. The downside risks coalesce around six themes drawn from both CLSA's internal India IT coverage and Infosys's own Q4 FY26 earnings call.

## 1. Macro & Discretionary Spend — Demand Remains "Guarded"

- **Tariff/geopolitical uncertainty persists.** CLSA's Gen AI Access Day note (24-Jun-2025) flags that "after writing a deep dive thematic report on Gen AI… meeting c.150 clients around the same we could realize a high level of uncertainty across client base" [4]. CFO Jayesh Sanghrajka echoed this on the Q4 call: client spending is "guarded with greater focus on cost optimization engagements as against growth-led transformation programs" [8].
- **Retail and Auto verticals worst hit.** Per CLSA's 1QFY26 commentary preview, "the sectors most impacted due to tariff related uncertainty are retail and auto, which have seen the highest impact on overall and discretionary demand" [3]. Infosys itself noted in retail that "consumer demand remains muted across the sector, and budgets are tightly controlled, with discretionary spends under pressure" [9].
- **CLSA's sector view**: "Broader discretionary spending remains muted amid an uncertain macro… overall discretionary spending has not improved materially while the cost-optimisation-related theme has intensified further" [1].

## 2. Concentration Risk — Large European Manufacturing Client Ramp-Down

This is the single largest **identified** drag built into FY27 guidance:

- "Reduction of **0.75% to 1%** due to a lower revenue from one of our large European manufacturing clients. This was due to reduced client spend on account of challenging macro environment, along with our conscious decision to not pursue a certain deal that were not aligned to our return expectation" [10].
- Reiterated in Q&A: the impact is "a combination of a deal which does not meet our returns expectation and the ramp-downs in this client through the year as the macro environment is challenging in that sector" [12].
- Auto manufacturing exposure in Europe is structurally weak — CLSA observes "Auto manufacturing has been weak" across the industry [1].

## 3. AI Deflation & Pricing Pressure — Productivity Being Passed to Clients

This is the most debated structural risk and is openly acknowledged by Infosys:

- **Management admission**: "the competitive intensity in the market has gone up and the productivity will get passed back to the client largely" [11].
- **Visible deflation**: "we do see some deflation from our existing services… largely part of that is getting offset by the new services, the new AI-driven services" [14]. Volumes have been **flat** through FY26 — growth is coming from pricing/scope, not headcount expansion [14].
- **CLSA's 1QFY26 preview** flags the same: "Pricing pressure due to Gen AI/ automation is happening… INFY is trying to pass on more benefits to the clients over market and hence gaining market share" — explicitly trading margin/realisation for share [1].
- **Quantified deflation expectations**: experts at CLSA's Gen AI Access Day suggested "deflationary pressure will be there, expectedly around 10%" near term [7], with **BCG and ISG holding the most bearish view** — "BCG sees deflationary threat to loom over next 2-3years before revenue opportunity kicks-in. ISG too expects deflation to supersede volume opportunity" [6].
- **Structural unknown**: at Wipro's session (read-across to industry), "RoI in the Gen AI projects is not established yet" and "pure Gen AI deals are still quite few and largely at pilot stages across Enterprises" [4].

## 4. Onsite Mix Compression — A Self-Inflicted Revenue Headwind

- Infosys is guiding for a **further 0.75–1% reduction in onsite mix** in FY27 [10]. CFO clarified "70 basis points is a reduction in onsite mix we are expecting, 40 to 50 basis points is already visible in the exit trajectory and we do… still believe there will be even further improvement on the onsite mix" [12].
- Reasons cited: "little bit of the environment, little bit of the visa situations in some of the countries, little bit of our own initiative to deliver more from offshore… the discretionary spend has also come down, which generally means higher onsite" — which is now reversing as offshore ratio rises.

## 5. Deal Quality Deterioration — Net-New Share Fading

- Net new component of deal TCV came in at the **lowest level in recent years**: "Percentage of net new deals came in at the lowest level we've seen in recent years" [13].
- For FY26, 55% of $15bn TCV was net new — down from prior trend, raising the question of whether large deals are increasingly **renewals/consolidations** (lower incremental revenue) rather than true new logos.
- Insourcing risk: analysts on the call flagged "articles around Vanguard insourcing" [12], pointing to a broader risk of GCC/captive build-out cannibalising managed services.

## 6. Vertical-Level Risks Beyond Manufacturing

| Vertical | Risk Flag | Source |
|---|---|---|
| Retail | "Continued uncertainty from supply chain disruptions, geopolitical conflict, and shifting trade policy"; budgets "tightly controlled" [9] | INFY Q4 FY26 call |
| Communications | "Overall, environment remains cautious amid macro uncertainty and margin pressures for clients. Budgets are flat to negative" [9] | INFY Q4 FY26 call |
| Hi-Tech | "Hi-Tech remains soft" — sector-wide [1] | CLSA 1QFY26 preview |
| Manufacturing (broad) | "Discretionary spending remains constrained, while clients prioritizing cost optimization and operational resilience" [9] | INFY Q4 FY26 call |
| BFSI (the one resilient anchor) | Risk = **if** BFSI rolls over, there is no offsetting vertical. CLSA notes BFSI is "more resilient" and CY26 budgets "expected to grow in US," making this Infosys's primary growth engine — but also its largest single point of failure | [1] [9] |

## 7. Competitive & Structural Risks

- **Competitive intensity has stepped up**: per Infosys, "last financial year, we had a growth, some other players had negative revenue" — implying aggressive pricing from negative-growth peers chasing share, with AI-led cost curves introducing pricing uncertainty.
- **GCC/Captive cannibalisation**: CLSA's panel observed Gen AI is "creating level playing field across small, mid and large sized players" and "Both GCCs (Captives) and IT outsourcing companies have important role to play" [4] — implying captives now compete more credibly for transformation work.
- **Productivity-led deal compression**: TCS-side commentary at the Gen AI Access Day stated "in the newer deals, there is consolidation due to the higher expected productivity getting baked into the deals" [5] — a structural read-through to Infosys's renewal book.

## Bottom-Line Risk Map

| Risk Bucket | Quantified Drag (FY27) | Severity |
|---|---|---|
| European manufacturing client | -0.75% to -1.00% | High (already in guide) |
| Onsite-to-offshore mix shift | -0.75% to -1.00% | High (already in guide) |
| AI deflation on existing book | ~10% pricing compression near term, offset partly by AI services | Structural |
| Discretionary spend / tariffs (retail, auto, comms) | Unquantified; baked into low end of guide | Medium-High |
| Net-new deal slowdown | Tail risk to FY28 pipeline | Medium |
| Competitive intensity / GCC build-out | Multi-year structural | Medium-High |

The combined message: even at the **midpoint of FY27 guidance (~2.5% CC)**, growth is *lower* than FY26 organic despite a stronger AI services tailwind — which CLSA interprets as a sign that **deflation + onsite mix + the single European client are quietly eating most of the AI-services upside**.

---

**Sources**

[1] India IT 1QFY26 (Commentary preview—status quo) — CLSA (18 Jun 2025) — 607962319LinqAlpha.PDF (TABLE chunk – Figure 6 demand commentary)
[2] India IT 1QFY26 (Commentary preview—status quo) — CLSA (18 Jun 2025) — 607962319LinqAlpha.PDF
[3] India IT 1QFY26 (Commentary preview—status quo) — CLSA (18 Jun 2025) — 607962319LinqAlpha.PDF (Retail/Auto)
[4] India Gen AI Access Day Summary (KTAs: High amount of uncertainty) — CLSA (24 Jun 2025) — 607962657LinqAlpha.PDF
[5] India Gen AI Access Day Summary — CLSA (24 Jun 2025) — 607962657LinqAlpha.PDF (TCS deflation comment)
[6] India Gen AI Access Day Summary — CLSA (24 Jun 2025) — 607962657LinqAlpha.PDF (McKinsey/BCG/ISG views)
[7] India Gen AI Access Day Summary — CLSA (24 Jun 2025) — 607962657LinqAlpha.PDF (10% deflation estimate)
[8] Infosys Ltd. — Q4 FY26 Earnings Call (23-Apr-2026) — FY27 guidance 1.5–3.5% CC
[9] Infosys Ltd. — Q4 FY26 Earnings Call (23-Apr-2026) — Vertical commentary (manufacturing, retail, comms)
[10] Infosys Ltd. — Q4 FY26 Earnings Call (23-Apr-2026) — European client + onsite mix reductions
[11] Infosys Ltd. — Q4 FY26 Earnings Call (23-Apr-2026) — Productivity pass-through to clients
[12] Infosys Ltd. — Q4 FY26 Earnings Call (23-Apr-2026) — Quantification of European client drag
[13] Infosys Ltd. — Q4 FY26 Earnings Call (23-Apr-2026) — Net-new deal share at multi-year low
[14] Infosys Ltd. — Q4 FY26 Earnings Call (23-Apr-2026) — AI deflation vs new services offset

## Citations

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

