Infosys is in focus after delivering strong Q3 results. Nomura has reiterated Buy on the IT bellwether and stated that the stock remains their “top pick in large cap India IT services space.” The leading international brokerage expects Infosys to post 4.7% YoY revenue growth in dollar terms in FY26. However Nomura has kept the target price unchanged at Rs 1,810 per share. This implies an upside of 13% from current levels.
Infosys has raised its FY26 guidance on expectations of better outlook for BFSI and Energy, Utilities, Resources and Services verticals in FY27. Nomura lists this and a host of other factors driving their recommendation. Here is a detailed analysis of Nomura’s investment rationale.
Nomura on Infosys: Revenue guidance raised
Infosys has raised its revenue growth guidance for FY26 to 3-3.5% from 2-3% YoY. The management noted that the lower end of the band assumes elevated levels of macro uncertainty, and the higher end assumes some improvement in macro. Nomura estimated that the implied QoQ growth for Q4FY26 is -1.6% to +0.3%. Large deals for Nomura were at $4.85 billion, with 57% net new wins.
The Infosys management noted that based on its deal wins, and AI partnerships, it expects revenue growth acceleration in BFSI, and Energy, Utilities, Resources and Services (EURS) verticals in FY27. Infosys is focussing on six value pools of opportunity in AI services – AI engineering services, data for AI, agents for operations, AI software development and legacy modernisation, AI for physical devices and AI trust services.
Nomura on Infosys: Stable margins likely
As a result of this, Nomura expects Infosys margins to remain stable at around 21% in FY26. Infosys’ adjusted EBIT margin of 21.2% was up 20 bps QoQ in Q3. Nomura pointed out that the tailwinds were 40 bps from Project Maximus as a result of the higher realization due to higher value-based selling and 40 bps from currency fluctuations.
However, Nomura pointed out that these were negated by headwinds of 70 bps from furlough expenses. They added that gains from land sale were negated by higher variable payout. Infy has not decided on the salary hike cycle yet after the last one in Jan-April, 2025. As a result, Nomura expects EBIT margins to be largely stable at 20.9% in FY26 vs the guided band of 20-22%.
Though Nomura has maintained the target price for now, they pointed out that the downside risks include slower-than-expected revenue growth and margin improvement. Upside risks include stronger-than-expected growth and guidance upgrade for FY26.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.