---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 202747
conversation_id: c6b7d149-6ba8-4a1c-8208-7e55f612c7e8
citations: 17
created: 2026-05-31 20:47:21Z
---

# What’s the bull case bear case for Infosys?

# Infosys (INFY) — Bull Case vs. Bear Case

**Setup**: CLSA rates Infosys **Outperform** with a 12-month target price of **Rs1,861** (June 2025), implying ~14% upside from Rs1,633 [2]. The earlier (March 2025) framework set the TP at Rs1,881 at a **25.2x multiple on 5Q–8Q forward EPS** — explicitly a 5% discount to TCS's target multiple [3][4]. The most recent results print (FY26 full-year) crossed **$20bn in revenue** with **+3.1% CC growth** and FY27 guidance of **1.5–3.5% CC** [11].

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## Bull Case

| Pillar | Evidence |
|---|---|
| **Best-positioned among large-cap Indian IT for the current demand mix** | CLSA's investment thesis explicitly calls Infosys "one of the best positioned Indian IT companies in the current IT demand environment where it can capitalise on **both cost optimisation and discretionary projects**" — i.e., a barbell exposure that performs in either cycle. Once green shoots emerge in BFSI, retail, hi-tech and telecom, "Infosys should be one of the key beneficiaries." [1] |
| **Strong large-deal engine** | FY26 large-deal TCV was **$14.9bn, +24% YoY** [12], with **96 deals signed, 55% net new** and three megadeals [15]. Q4 alone was $3.2bn — a strong showing in a quarter where peers saw decision-making slow. Net-new mix means these deals add real revenue rather than just renewing existing run-rate. |
| **Salil Parekh-era platform + partner ecosystem** | Under CEO Salil Parekh, Infosys has "built a strong partner ecosystem with key SaaS and public cloud providers. Its ability to stitch large bundled deals is a testimony to clients' faith in its execution and management track record." [1] Visible in continued GCC wins (large AI-first GCC for a US regional bank in FY26) and the strategic-AI-partner status with 18 of top 20 BFSI clients. |
| **AI as a revenue creator, not just a deflation risk** | INFY management cites **20–40% productivity gains** from Gen AI in various services (up to 40% in customer service, 20–25% in Finacle), with productivity **partly** shared with clients, while AI opens new spend pools like credit-risk platforms and AI platforms for telcos [5]. Topaz Fabric (AI) + Cobalt (cloud) platforms position INFY across six AI service areas with marquee wins (Ralph Lauren, Hertz, bp). |
| **Q1FY26 demand commentary is incrementally constructive** | Per CLSA's INFY-specific 1QFY26 preview check-ins: "Macro has not deteriorated, rather there has seen some positivity… INFY is trying to pass on more benefits to the clients over market and hence **gaining market share**" — and BFSI is described as having "continued momentum and has been more resilient" with legacy modernisation now flagged as a *new volume opportunity* for Infosys from Gen AI [8]. |
| **Cash-generative, shareholder-friendly model** | Adjusted FCF/PAT conversion ran at **106% for FY26 and 111% in Q4** [17]; Infosys returned >$4bn to shareholders in FY26 and raised the dividend 11.6%. Margins held at **21% adjusted in FY26**, with currency + Project Maximus reinvested in talent, AI and S&M [16]. |
| **Valuation reset already done** | The stock had drawn down meaningfully into the current setup — **down ~20.5% YTD** as of late-Apr 2025 [9] — i.e., much of the demand-uncertainty premium has been wrung out before the FY27 reset. CLSA's 25.2x target multiple anchors valuation at a 5% discount to TCS, not at peak multiples [3]. |

---

## Bear Case

| Pillar | Evidence |
|---|---|
| **FY27 growth guidance is structurally low** | Management guided FY27 revenue growth at just **1.5–3.5% CC** — a deceleration vs. FY26's 3.1% even with M&A contribution baked in (Stratus closed; Versent JV and Optimum Healthcare pending) [11]. That guidance band signals limited visibility on demand recovery. |
| **One-large-client overhang in European manufacturing** | FY27 guidance embeds a **0.75–1% drag from a large European manufacturing client** whose spend is ramping down due to challenging sector macro, compounded by Infosys consciously walking away from a deal that did not meet return thresholds [13]. Manufacturing remains pressured by tariff uncertainty and weak auto demand in Europe. |
| **AI deflation / productivity pass-through is real and accelerating** | CFO Sanghrajka: "the **competitive intensity in the market has gone up and the productivity will get passed back to the client largely**" — i.e., AI productivity benefits flow *to clients, not vendors* [14]. Infosys was singled out as having had "Pass on of productivity gains to its largest client in 2 months of 3Q25 and 1 month of 4Q25 led to revenue deflation" [10]. CLSA flags committing higher productivity than realised as a "longer-term margin risk for the global IT service industry" [7]. |
| **Onsite mix shift = additional revenue drag** | A further **0.75–1% reduction in onsite mix is built into FY27** as work moves offshore — good for margins, but a direct hit to reported USD growth on top of the European client drag [13]. Combined, these two structural items remove ~1.5–2 percentage points from FY27 growth before any macro slippage. |
| **Margin tailwinds are being recycled, not extended** | Margin guidance is **20–22% for FY27** vs. 21% reported adjusted — i.e., flat at the mid-point. Wage hikes, productivity pass-throughs, AI investment and ~70bps of M&A-related drag offset Project Maximus gains [13]. Even FY26 currency and Maximus tailwinds were "reinvested in talent, AI investment and sales and marketing" rather than dropping to the bottom line [16]. |
| **Discretionary remains soft across key verticals** | Q1FY26 commentary: "discretionary spend still delayed… Uncertainty is still largely there around tariffs and clients want more clarity… No major change in spending pattern or tech budgets lately" [8]. Manufacturing, Retail, Hi-Tech and Communications are all flagged soft; budgets in retail/CPG are "tightly controlled, with discretionary spends under pressure." |
| **4QFY25 large-deal TCV was weak** | "Large deal Total Contract Value (TCV) was **weak in 4Q**" with Infosys positioned as one of the more discretionary-exposed names in the cohort [6]. CLSA at the 4QFY25 review also flagged a "severe fall in large deal wins" for Infosys vs. peers like Wipro. |
| **Net-new % declined in latest print** | Asked on the call about the net-new mix coming in at the lowest level in recent years (despite the headline $15bn TCV), management deflected without quantifying — pipeline-quality concern that the bull pillar is partially offset by lower-quality renewal mix going forward. |

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## Bottom Line

The **bull case** rests on (i) the partnership/platform-led large-deal engine producing record TCV, (ii) AI as a net positive over time as legacy modernisation expands faster than coding-related compression, (iii) one of the most balanced exposures across cost-takeout and discretionary in Indian IT, (iv) a valuation reset that has already priced significant demand uncertainty, and (v) BFSI / EURS momentum providing FY27 acceleration. CLSA's continued **O-PF rating with Rs1,861 TP** (~14% upside) captures this stance [2][4].

The **bear case** is that the FY27 1.5–3.5% guide is *the* outlook — not a conservative anchor — and that the construct embeds two structural drags (European manufacturing client, onsite shift) of ~1.5–2 ppts before any incremental AI-driven deflation. Productivity pass-throughs on existing books, flat margin guidance even with INR tailwinds, weak net-new mix in the most recent quarter, and discretionary softness in Manufacturing / Retail / Hi-Tech / Communications all argue that revenue growth could converge toward the **lower end** of the band and that multiple compression vs. TCS may persist longer than the 5% target-multiple discount currently embeds.

---

**Sources**
[1] India IT (4Q25 preview) — CLSA (24 Mar 2025) — Investment thesis: Infosys Ltd INFO IB — 607953702LinqAlpha.PDF
[2] India IT 1QFY26 (Commentary preview—status quo) — CLSA (18 Jun 2025) — INFY: O-PF, TP Rs1,861, +14% upside — 607962319LinqAlpha.PDF
[3] India IT (4Q25 preview) — CLSA (24 Mar 2025) — Infosys valuation methodology table — 607953702LinqAlpha.PDF
[4] India IT (4Q25 preview) — CLSA (24 Mar 2025) — Infosys snapshot table (O-PF, TP Rs1,978→Rs1,881) — 607953702LinqAlpha.PDF
[5] India IT (4QFY25: V-shaped recovery) — CLSA (2 May 2025) — Infosys GenAI commentary — 607957919LinqAlpha.PDF
[6] India IT (4QFY25) — CLSA (2 May 2025) — Infosys: Large deal TCV growth was weak — 607957919LinqAlpha.PDF
[7] India IT (4Q25 preview) — CLSA (24 Mar 2025) — GenAI productivity longer-term margin risk — 607953702LinqAlpha.PDF
[8] India IT 1QFY26 (Commentary preview) — CLSA (18 Jun 2025) — Infosys particulars: demand, BFSI, margins — 607962319LinqAlpha.PDF
[9] India IT (4QFY25) — CLSA (2 May 2025) — YTD share price change table — 607957919LinqAlpha.PDF
[10] India IT (4QFY25) — CLSA (2 May 2025) — Timeline of GenAI productivity gains by service line — 607957919LinqAlpha.PDF
[11] Infosys Ltd., Q4 FY2026 Earnings Call — Salil Parekh on FY27 guidance (1.5–3.5% CC, 20–22% margin)
[12] Infosys Ltd., Q4 FY2026 Earnings Call — FY26 large-deal TCV $14.9bn, +24% YoY
[13] Infosys Ltd., Q4 FY2026 Earnings Call — Jayesh Sanghrajka on European manufacturing client drag + onsite mix shift
[14] Infosys Ltd., Q4 FY2026 Earnings Call — CFO on competitive intensity and productivity pass-through
[15] Infosys Ltd., Q4 FY2026 Earnings Call — FY26 96 large deals, $15bn TCV, 55% net new
[16] Infosys Ltd., Q4 FY2026 Earnings Call — Adjusted operating margin 21%, currency/Maximus gains reinvested
[17] Infosys Ltd., Q4 FY2026 Earnings Call — Adjusted FCF/PAT 106% FY26, 111% Q4

## Citations

- [1] **607953702LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/03/607953702LinqAlpha.PDF>
- [2] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>
- [3] **607953702LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/03/607953702LinqAlpha.PDF>
- [4] **607953702LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/03/607953702LinqAlpha.PDF>
- [5] **607957919LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957919LinqAlpha.PDF>
- [6] **607957919LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957919LinqAlpha.PDF>
- [7] **607953702LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/03/607953702LinqAlpha.PDF>
- [8] **607962319LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962319LinqAlpha.PDF>
- [9] **607957919LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957919LinqAlpha.PDF>
- [10] **607957919LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607957919LinqAlpha.PDF>
- [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
- [15] **Infosys Ltd., Q4 2026 Earnings Call, 23-April-2026 8** · external
- [16] **Infosys Ltd., Q4 2026 Earnings Call, 23-April-2026 8** · external
- [17] **Infosys Ltd., Q4 2026 Earnings Call, 23-April-2026 8** · external

