Nifty IT Surges Over 3% As Infosys Raises Guidance After Q3 Results

The Nifty IT index, which tracks the 10 most actively traded and valuable technology stocks, surged more than 3 per cent on January 16 after Infosys reported its October–December quarter (Q3FY26) results post-market hours on January 14. The Salil Parekh-led IT services giant raised its FY26 revenue growth guidance to 3-3.5 per cent in constant currency (cc) terms from the earlier estimate of 2-3 per cent. However, the management retained its operating margin guidance at 20–22 per cent, excluding the impact of labour code adjustments.

Infosys shares jumped as much as 5.82 per cent to hit the day's high at Rs 1,693 per share. Earlier, reacting first to the cue, Infosys’ American Depositary Receipts jumped more than 10 per cent on Wall Street on January 15.

Infosys’ earnings guidance raised the outlook for other IT sector stocks as well. Consequently, all other constituents of the IT index also traded in green. At the time of writing, Tech Mahindra, Oracle Financial Services Software, and LTIMindtree were also trading higher between 4 per cent and 5 per cent. Index heavyweight Tata Consultancy Services (TCS) was up by 2.22 per cent, and mid-cap IT stocks such as Mphasis, Coforge, and Persistent Systems also surged between 2 per cent and 3.50 per cent. HCL Technologies and Wipro shares traded higher by 2.20 per cent and 2.81 per cent, respectively.

The Nifty IT index has had a choppy 2025, delivering a negative yield of nearly 10 per cent. However, since the start of Q3FY26, the index has rallied 16 per cent till now.

Infosys Q3FY26 Results

Infosys reported revenue of Rs 45,479 crore for Q3FY26, a year-on-year (y-o-y) growth of 8.9 per cent and a quarter-on-quarter (q-o-q) jump of 2.2 per cent. In cc terms, revenue rose 1.7 per cent y-o-y and 0.6 per cent q-o-q.

Operating profit declined 6.3 per cent y-o-y to Rs 8,355 crore and fell 10.7 per cent q-o-q. Operating margin stood at 18.4 per cent, as against 21.3 per cent a year ago and 21.0 per cent in the preceding quarter.

Profit before tax (PBT) came in at Rs 9,229 crore, down 4.6 per cent y-o-y and 9.8 per cent q-o-q. Net profit after non-controlling interests fell 2.2 per cent y-o-y to Rs 6,654 crore and declined 9.6 per cent sequentially.

Basic earnings per share (EPS) stood at Rs 16.17, lower by 1.6 per cent y-o-y and 9.0 per cent q-o-q. Diluted EPS was Rs 16.14, also down 1.6 per cent y-o-y and 9.0 per cent sequentially.

Free cash flow for the quarter was Rs 8,176 crore, as against Rs 10,647 crore a year ago and Rs 9,677 crore in the September quarter.

“Infosys delivered a strong Q3 performance demonstrating how our differentiated value propositions in enterprise AI, through Infosys Topaz, are consistently driving higher market share,” said Salil Parekh, CEO and managing director. “Clients increasingly view Infosys as their AI partner with demonstrated expertise, innovation capabilities and strong delivery credentials,” he added.

Infosys reported large deal wins worth $4.8 billion during the quarter under discussion. About 57 per cent of the total contract value (TCV) came from net new deals. The company said the strong deal momentum helped drive sequential revenue growth during what is typically a seasonally weak quarter.

“Our performance was broad-based in Q3 with 0.6 per cent sequential revenue growth, 0.2 per cent adjusted operating margin expansion, stellar large deal wins at $4.8 billion and robust adjusted free cash generation,” said Jayesh Sanghrajka, chief financial officer.

Infosys Hit By New Labour Codes

Infosys said its Q3FY26 results were hit by a one-time charge of Rs 1,289 crore following the notification of India’s new labour codes on November 21, 2025. The company clarified that the impact arose from a higher gratuity liability due to past service costs and an increase in leave-related liabilities, which were recognised in the consolidated income statement.

The management said the one-time provision largely captures the cost of transitioning to the new labour code regime and does not expect any additional provisioning in the coming quarters. However, Infosys noted that the labour codes will have a recurring impact on margins, which it estimated to be at around 15 basis points annually.

The management termed the charge as exceptional and adjusted its operating margin guidance to exclude this impact.

For investors, the new labour codes are significant as they consolidate 29 existing labour laws into four codes, introduce a uniform definition of wages, and enhance statutory benefits such as gratuity and leave, resulting in higher long-term employee benefit costs for large employers like Infosys.

New Labour Codes: What Investors Need To Know

The new labour codes bring 29 existing labour laws under a single framework governing employee benefits during and after employment. These codes also introduce a uniform definition of wages and enhanced leave-related benefits.

“The adjustments for labour codes represent an increase in gratuity liability arising out of past service cost and an increase in leave liability, together by $143 million (Rs 1,289 crore), which is recognised in the Consolidated Statement of Comprehensive Income,” Infosys said in a regulatory filing.

IT Sector Outlook 2026

The IT sector is looking at a challenging 2026 as rising costs and the early impact of AI adoption weigh on growth and profitability.

Sumit Pokharna, vice-president – fundamental research at Kotak Securities, said the demand environment remains weak due to subdued discretionary spending across several segments, even as BFSI stands out with a sharper focus on cost take-outs that have intensified competition.

He noted that AI adoption is gradually gaining traction in IT services and BPO, but cautioned that it could create “material net headwinds in the initial years of adoption.” According to Pokharna, the productivity benefits of generative AI are likely to be most pronounced in application development, followed by application managed services.

On margins, he said the outlook remains challenging amid pressures from the implementation of new labour codes, uncertainty around H-1B visas, pricing pressure during contract renewals, and weak discretionary spending in several markets. Despite these headwinds, he said that strong execution on operational levers will be crucial to maintaining margin stability.