Shares of Infosys fell to their lowest level in three years on Friday after the company issued a softer-than-expected growth outlook, reinforcing concerns that a recovery in global technology spending may take longer to materialize.
The stock dropped as much as 4.2% to 1,188.50 rupees, its weakest level since April 2023, and was among the biggest drags on the Nifty IT Index. LTIMindtree led losses on the index, falling 4.87% despite posting a modest earnings beat, underscoring how cautious sentiment has become across the sector.
The weakness spilled into overseas markets, with Infosys’s U.S.-listed shares sliding 6% overnight, as investors reassessed the outlook for India’s $315 billion IT services industry, which derives the bulk of its revenue from North America and Europe.
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The company’s guidance for fiscal 2027 is believed to have triggered the selloff. Infosys expects constant-currency revenue growth of 1.5% to 3.5%, below market expectations of around 2% to 4%. While the downgrade is not severe in absolute terms, it points to a more prolonged period of subdued expansion, particularly in discretionary spending segments.
A key area of weakness is the manufacturing vertical, especially in Europe’s auto sector. Carmakers and suppliers are navigating a complex transition involving electrification, cost pressures, and uneven demand, prompting many to defer large technology projects or break them into smaller, phased engagements. For Indian IT vendors, which have long relied on such contracts for steady revenue visibility, the shift is proving disruptive.
Infosys’s warning follows similar signals from HCLTech, which also pointed to tighter deal scrutiny and rising competition. The tone across the industry has turned more cautious, with companies increasingly selective about the contracts they pursue, prioritizing profitability and execution certainty over volume.
The pressure is not confined to mid-tier players. Tata Consultancy Services, the sector bellwether, recently reported its first annual revenue decline in more than two decades — a development that has sharpened concerns that the slowdown is broad-based rather than company-specific.
Analysts say the issue is less about a collapse in demand than a reordering of priorities. According to Bank of America, the latest forecasts from Infosys and HCLTech suggest that growth will take longer to pick up, even though underlying demand for technology services remains intact. Clients are still spending, but with a different emphasis — focusing on cost optimization, efficiency gains, and shorter-term returns.
That shift is being shaped in part by the rapid evolution of new technologies. Companies are reallocating budgets toward emerging capabilities while reassessing legacy spending, creating a temporary disconnect between deal wins and revenue conversion. Large, multi-year transformation projects, once the backbone of the industry, are becoming less predictable, replaced by smaller, modular engagements.
Despite the weaker outlook, Infosys has shown some operational strength. Analysts at Morningstar noted that the company has been relatively effective in converting bookings into revenue compared with peers, even in a volatile environment. Its growing portfolio of next-generation services is expected to support steady mid-single-digit growth over the medium term.
Even so, the near-term picture remains uncertain. At least seven brokerages cut their price targets following the guidance, citing limited visibility on earnings recovery. Nomura took a more constructive view, raising its target slightly to 1,640 rupees, suggesting that valuations may already reflect much of the downside risk.
The broader challenge for the industry lies in navigating a more complex operating environment. For years, Indian IT firms benefited from a steady pipeline of outsourcing deals and large-scale digital transformation programmes. That model is now evolving, with clients demanding greater flexibility, faster delivery, and clearer returns on investment.
Geopolitical tensions are adding another layer of caution. Uncertainty around trade, regulation, and global growth is influencing corporate decision-making, particularly among multinational clients that account for a significant share of Indian IT revenues.
The task ahead for Infosys is to manage this transition without eroding its competitive position. Analysts warn that the company must maintain cost discipline, deepen client relationships, and adapt to changing demand patterns, all while preserving margins in a slower growth environment.
However, the market reaction is seen as an indication that investors are preparing for a drawn-out adjustment rather than a quick rebound.