Ladies and gentlemen, good day, and welcome to Infosys Limited Q1 FY '26 Earnings Conference Call. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindroo. Thank you, and over to you, Mr. Mahindroo.

Hello, everyone, and welcome to Infosys earnings call for the first quarter of FY '26. Joining us on this call is CEO and MD, Mr. Salil Parekh; CFO, Mr. Jayesh Sanghrajka, and other members of the leadership team. We'll start the call with some remarks on the performance of the company, subsequent to which we'll open up the call for questions. Please note that anything we say that refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the company faces. A complete statement and explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. I'd now like to pass on the call to Salil.

Thanks, Sandeep. Good evening, and good morning to all of you. Thank you for joining us. We had a strong start to our financial year. Our revenues grew 2.6% sequentially and 3.8% year-on-year in constant currency terms. Growth was broad-based with our large 5 industry groups and our large geographies growing year-on-year in constant currency. Our large deals were at $3.8 billion. Our operating margin was 20.8%, and our free cash flow was at $884 million. The main drivers of our growth were our leadership in enterprise AI and our continued success in clients selecting us for consolidation. We are seeing good demand for AI agents. We built 300 agents across business operations and IT areas. Our horizontal and vertical agents are helping our clients drive faster decisions, improve customer experience and enhance operational efficiency. Let me share with you some examples of where we're doing project work on enterprise AI for our clients. An oil and gas major is using Infosys AI agents to enhance production quality in their refinery, orchestrate dynamic pricing in their retail stores and automate their contract management system for efficient trading. A leading global manufacturing company is using Infosys AI agents across their supply chain to unlock productivity and cost benefits and efficiently resolve issues related to malfunctioning equipment. A logistics company is using Infosys AI agents to transform customer care, operations, logistics and finance and accounting to become more efficient. For a leading North American retailer, we are transforming in-store shopping into a frictionless data-driven experience, boosting customer satisfaction, loyalty and operational efficiency. This is being done by integrating physical AI through intelligent automation and edge-based computer vision. A global financial services company is using Infosys enterprise AI solutions with a fine-tuned large language model. This system translates code and automates documentation. The solution increased developer productivity by 25% and automated 50% of business requirement creation in support of their modernization plan. Building on 19 leadership ratings we received in financial year 2025, we are now positioned additionally as leaders in Gartner's first generative AI consulting and implementation services quadrant. We are the only large India-based technology services company to be positioned as a leader. Based on our performance in Q1 and our current outlook, our guidance for growth for financial year 2026 is revised from the earlier guidance of 0% to 3%, now it's 1% to 3% growth in constant currency terms. Our margin guidance remains unchanged at 20% to 22%. With that, I'd like to invite Jayesh to share his comments.

Thank you, Salil. Good morning, good evening, everyone, and thank you for joining the call today. We have been able to successfully navigate a quarter of global uncertainty, which is reflected in our holistic business performance. We delivered market-leading sequential growth, robust large deal wins with strong net new, resilient operating margins, high single-digit EPS growth and another quarter of free cash flow to net profit of over 100%. Let me cover the key aspects of the results. Growth was strong and broad-based. Revenue up 2.6% sequentially, including 0.4% from acquisitions and 3.8% on a year-on-year in constant currency terms. Sequential revenue growth was achieved despite a significant reduction in third-party costs by 60 basis points to 7.3% of revenue. Sequential growth was once again driven by an increase in realization, thanks to progress in the Project Maximus. Volume growth, while muted, was positive. Manufacturing grew in double digits and Financial Services and Energy, Utilities, Retail, and Services (EURS) grew above 5% year-on-year in constant currency terms. Amongst geographies, North America grew ahead of the company at 2.9% sequentially in percentage terms. On a year-on-year basis, Europe grew 12.3%, which is over three times the company average. Operating margins were at 20.8%, down 20 basis points quarter-over-quarter and 30 basis points year-on-year. Sequential margin resilience was despite absorbing balanced compensation hikes, higher variable pay and investments in sales and marketing. Utilization, including trainees, went up 30 basis points quarter-over-quarter at 85.2% and including trainees up 80 basis points to 82.7%. EPS in rupee terms grew by 8.6% and in dollar terms grew by 5.8% year-on-year. Our relentless focus on cash continues and is reflected in free cash flows of INR 884 million, which is 109% of net profit. This is the fifth consecutive quarter of free cash flows being over 100% of net profit. We expect FY '26 free cash flows to be above 100% of net profit. Consolidated cash and cash equivalents stood at INR 5.27 billion at the end of the quarter after paying out the final dividend for FY '25. Yield on cash balance was 7.2% in Q1. ROE improved by 140 basis points to 30.4% due to dividend payouts. Large deal wins were robust, comprising of 28 deals with a TCV of $3.8 billion, including 55% net new. This includes multiple vendor consolidation deals with a combined TCV of over $1 billion, including a mega deal with one of the largest global banks. This reflects our deep-rooted client relationships and differentiated delivery capabilities. Vertical-wise, we signed nine deals in communications, six in EURS, five in manufacturing, four in financial services, and two each in high-tech and retail. Region-wise, we signed 20 deals in the Americas, six in Europe and two in the rest of the world. Headcount at the end of the quarter was 323,788. Attrition increased marginally to 14.4%. Operating margin for Q1 was at 20.8%, a decline of 20 basis points sequentially. The major components of sequential margin change for the quarter are as follows: headwinds of 100 basis points from compensation increases and higher variable pay, partly offset by other salary-related items. Additionally, there was a 30 basis point decrease from currency movement and a 20 basis point reduction from sales investment, partly offset by tailwinds of 70 basis points from increases in realization due to Project Maximus and seasonality, 40 basis points on account of lower amortization costs on intangibles and 20 basis points from lower third-party costs, leading to a 20 basis point drop in operating margin sequentially. Effective tax rate for the quarter was at 28.9%. The effective ETR rate for the financial year '26 is expected to be in the range of 29% to 30%. While Q1 was steady, the business environment remains uncertain due to lack of resolution on tariffs and geopolitical situations. Clients continue to be cautious in their discretionary spending, reflecting delayed decision-making. Near-term visibility remains good, and we expect stronger H1 compared to H2 on account of normal seasonality, as highlighted earlier. Coming to verticals, Financial Services saw good momentum this quarter in the U.S. with capital markets, commercial banking and wealth management seeing numerous transformation opportunities. Agentic AI is playing a pivotal role with a focus on areas like KYC onboarding and portfolio management. We are now the preferred AI partner for ten of the top twenty clients in Financial Services with many initiatives scaling from POC to production, especially in Agentic AI. We are partnering with Global Capability Centers (GCCs) both in setup and growth-led deals. While the pipeline is strong with new opportunities in vendor consolidation, cost optimization and simplification, clients are cautious about decision-making due to a volatile environment. The manufacturing segment continues to face challenges in automotive, industrial and Europe with decision-making delays and soft discretionary spending. While clients are re-evaluating their supply chains due to tariff uncertainty, we are helping them leverage technology across the end-to-end lifecycle from design to manufacturing to sales. The pipeline remains healthy with a focus on cost takeout opportunities. We won a large deal in this vertical in Q1 to help a client set up a GCC. In auto, we are helping clients rationalize their footprints and in industrial, we are assisting them with cost optimization. EURS vertical outlook remains mixed due to economic uncertainties. The pipeline for both large and mega deals remains strong. Our investment in industry cloud, energy transition, and AI-driven operational efficiency are driving growth and differentiating us in large deals. In energy, high cost pressures due to oil price volatility are prompting clients to consolidate vendors for savings. In utilities, advancements in renewable energy, smart grid technology and sustainability regulations are reshaping the market. In services, clients remain cautious about spending on CapEx and OpEx. In retail, uncertainty around tariffs has led to muted spending in large geographies, supply chain impacts and procurement disruptions. Budgets remain tight, and decision cycles have elongated. There is a slowdown among clients on discretionary spend though our pipeline is strong. We are seeing strong commitments from clients to engage us as trusted partners for AI-first outsourcing and transformation deals in both IT and Business Process Management (BPM) services. Enhanced interest in AI is resulting in budget reallocation with discretionary spending expected to be self-funded through AI-led productivity benefits. Deals in the sector continue to leverage Topaz and AI Next platform capabilities. Communications is facing growth challenges and increased OpEx measures amidst a volatile macroeconomic and political landscape. Clients are focusing on cost takeout and vendor consolidation. There is a strong focus on AI and customization to monetize 5G use cases. However, ROI concerns are delaying newer investments. OEMs are aiming for profitable growth and are exploring all levers, including tighter and reduced IT budgets along with leveraging AI and automation. Growth for us is led by ramp-ups of previously won large deals. Clients in Hi-Tech remain cautious due to macro headwinds and geopolitical tensions leading to cost pressures and budget cuts. Discretionary programs are paused because of significant investments in Generative AI, GPUs and AI. Driven by our Q1 performance and current assessments of the rest of the year, we have revised our FY '26 revenue guidance to 1% to 3% in constant currency terms. This continues to assume a reduction in third-party revenues versus FY '25 based on existing deals and new deals in the pipeline. Our operating margin guidance for the year is 20% to 22%. We will continue to keep a close watch on the economic environment and its impact on client budgets and reassess our guidance as we progress during the year. With that, we can open the floor for questions.

First question is from the line of Ankur Rudra from JPMorgan.

So I mean, clearly, good to see a refreshing revenue print here. Key question is on your organic growth momentum. Now on a year-over-year basis for the quarter, it's quite strong, probably 3.5%, 3.4%. Overall growth was about 5% last quarter. So the question is, why are you still guiding for like 2% at the midpoint? What is it that you're seeing that makes you feel that the year-over-year growth trajectory on constant currency will weaken given the solid signings you've had? Or asked another way, why drop the upper end of the guide here?

Ankur, this is Jayesh here. As we had said at the beginning of the year, at the lower end of the guidance, we had baked in heightened uncertainty. At the higher end of the guidance, we had baked in a steady to improving environment. While Q1 was strong, if you look at the environment, underlying it hasn't really changed. Q2, we are not really seeing signs of significant environmental changes. The tariff situation still remains escalated. The geopolitical situation hasn't really changed. This is the part of the year, Q1 and Q2 put together is the strongest part of our year seasonally, right? So looking into all of that, our current guidance at the bottom end expects continuing uncertainty or elevated level of uncertainty, and the upper end bakes in a steady environment at this point in time. This is based on what we see today.

Okay. Appreciate it. Maybe a couple of questions on AI. Are there any kind of margin or pricing trade-offs you see when you engage with clients in renewals or maybe even out of turn, where the expectation is some of the benefits of AI are baked into their contracts. Are you also proactively taking this to clients? That's part number one. Part number two is there seems to be a lot of significant increase in vendor consolidation, and I think it's AI is part of any of those contracts as well. Do you think that is potentially increasing the replaceability of vendors such as yourselves because of more use of generative AI?

Ankur, this is Salil. I think on the first part, what we see with enterprise AI now is there are areas where there are good productivity benefits and especially as we're deploying agents or setting up whole enterprise AI platforms for clients using foundation models. And there are some areas where we are seeing new opportunities for revenue. Typically, there are productivity gains, and those are shared between clients and ourselves. In many cases, those are situations where either the clients are seeking it themselves or we are bringing it to clients in an effort to make things more efficient. In doing so, we typically get an opportunity because our enterprise AI work is quite solid to do other things, both in enterprise AI and in other areas with the clients. So that's how we are seeing that piece of the work going on.

The other question, Salil, was on, do you think there's any kind of increase in replaceability of vendors because we hear a lot more about under-consolidation now? And is that helped by AI in any way?

So there, what we are seeing is, at least in the ones that we have benefited from, of which Jayesh mentioned, a good number of them in the Q1 large deals. Just looking at those as a sample set, we see that clients have looked at where they have seen companies that are not bringing them good AI solutions in the recent past, solid delivery or where they're looking at some of the smaller companies coming out. Those are the areas where, because of our strength in delivery, we feel quite positive that we, on net, are benefiting from it. I don't think it's making it easier or more difficult, but that track record, whether you brought that AI innovation to the client, whether you've delivered in a way that has worked for them over the past and whether you have the scale to do a lot of different things because clients are looking at multi-service capability, that is helping with large clients for us.

Next question is from the line of Kumar Rakesh from BNP Paribas.

Before I get to the question, just a clarification on the guidance part, which you spoke about, Jayesh, just now. So your revision of guidance, especially the top end of the organic growth is just a reflection of change in the macroeconomic environment assumptions and not necessarily how you look at the deals ramping up or the impact of third party or any operational-related issues, right?

Yes. At the start of the year, we indicated the situation concerning third parties and the lower end of that spectrum. That aspect remains unchanged. We also mentioned at the upper range of our guidance that we anticipate a stable to slightly improving environment. However, we did not observe any improvement in Q1, and nearly a month into Q2, the issues related to tariffs and geopolitical conditions persist. Clients continue to adopt a cautious approach regarding discretionary spending and deal signings, leading to lengthened cycles. From this viewpoint, we expect to maintain the upper end of our guidance with a steady environment factored in. It's important to note that when comparing Q1 year-on-year, the costs associated with third parties remained relatively flat. Thus, when year-on-year growth is analyzed and projected for the entire year, there will be a headwind impacting full-year growth concerning the third-party segment.

Got it. And just the first question around the revenue piece. So in this quarter, you spoke about there has been a pricing and productivity benefit of about 70 bps in the first quarter. Can you just give some details about that? Where are we getting that? And through the year, you spoke about that the third-party will come down on a full-year basis further. But from first quarter level, will it further come down from these levels?

If you examine the pricing, we've discussed it previously regarding Project Maximus and its value-based selling approach. There are several components within Project Maximus that have been beneficial. The 70 basis points increase is due to both the advantages from Project Maximus and some seasonal factors. This quarter, we have more working calendar days, and there is also some impact from the furlough flushback. Therefore, the benefits arise partly from seasonality and partly from Project Maximus. Looking at the entire year, last year we mentioned a pricing benefit of around 3.5%. We also gained from easier opportunities. In my view, Project Maximus has played a role in this as well. Regarding the third party, we are not providing a quarterly update. However, based on the deals we've completed and those in the pipeline, we anticipate that third-party performance in FY '26 will improve compared to FY '25.

My second question was on Europe performance. The last four or five quarters, Europe has been consistently outperforming your overall growth. So, a, what is driving that? And b, how sustainable do you think this outperformance could be or just a strong growth could be?

So I think the growth in Europe in the last multiple quarters and years is on the back of a few things, right? We are one of the first companies a few years back to call out Europe as an opportunity. We have made investments on the back of that hypothesis in Europe, and that has helped us win some very, very large and mega deals in the region. So that has definitely contributed to growth in Europe. There are consolidation deals that we have won in Europe as well, which have also helped. Over a period of time, Europe is also opening up from an outsourcing perspective. So that is also helping in growth.

And going forward, sustainability of this strong growth in Europe, do you remain confident on that?

I think there are enough opportunities in Europe. Now, whether it will continue growing beyond the company growth or not, I don't think we are providing guidance on that. Where we are standing today, we are seeing opportunity in Europe, and many of the large deals sitting in Europe as well as the pipeline contains a good number of large deals in Europe.

Next question is from the line of Abhishek Kumar from JM Financial.

I had a question on vendor consolidation. This has been going on for the last at least a couple of years now. Do you think there has been a shift in the vendors we are competing with? Maybe earlier, it was the longer tail of small vendors, which these enterprises had added post-COVID. And do you think now it has shifted to larger peers? Therefore, the fight to hold onto your tough and add more becomes a bit more challenging and kind of puts pressure on our margins?

So, this is Salil. Regarding vendor consolidation, we see that clients have a variety of options. This trend has been developing for some time, even extending beyond the last few years. Currently, Infosys is gaining from this situation due to the type of projects we are delivering, especially our recent advancements in enterprise AI and our consistent performance across all our offerings during this period. We've previously mentioned our focus on automation and lean methodologies. These elements come together, leading clients to choose us, which includes both larger companies and smaller mid-sized ones. Regarding pricing, we observe a typical approach focused on productivity; this remains unchanged during consolidation. However, there is an expectation for productivity improvements over time. We are engaged in discussions that emphasize the benefits we can provide through our automation, lean practices, and enterprise AI initiatives.

My second question is on your seasonality. You're probably the only company who's saying that the second half will be weaker than the first half. Most of the others are hopeful of a rebound in the second half. So is it just seasonality that is driving this kind of a view? Or do you think some of the large deals which are helping us in sectors like communication, they kind of get into steady state and therefore, the visibility, given the large deals last year were weaker than the year before, the visibility from deals ramping up in the second half is lower?

So Abhishek, it is also a factor of what you deliver in H1, right? If your H1 is relatively in line with what you were expecting, then the usual seasonality will come in. If you have seen a higher pressure in H1, then your hope for H2 is better. You have to view all of those commentary in line with the performance of H1 and H2. I think our Q1 has been strong. If you look at results from across the market, I think we have delivered a strong performance. That makes us believe we would have a usual seasonality in the models.

Next question is from the line of Bryan from TD Cowen.

I wanted to ask on geographies. So Europe, obviously very strong, while North America was up slightly. Can you comment on North America? Do you have visibility to an improvement in growth there?

Bryan, I think North America remains an important part of our business. It's the largest geography for us. At this point in time, we are seeing opportunities in pockets, especially in financial services in North America, etc. But there are pockets of geographies, such as manufacturing and retail, which remain challenging. At the same time, when you look at the large deal wins that we signed this quarter, 20 of them came from North America, six in Europe and two in the rest of the world. So we do see opportunities both in terms of large deals, cost takeout as well as consolidation in North America.

Okay. And then as it relates to the smaller deals, in the past, you've commented on small deal activity. Can you just provide some comments on how that progressed during the quarter?

We do not comment on small deals regularly. There was one quarter where we saw heightened activity in small deals, which we did call out because we thought it was relevant from an investor perspective. At this point in time, our overall pipeline continues to remain strong. Within that, the large deal pipeline is also strong. We have delivered $3.8 billion, which is a 44% increase on a sequential basis, 55% net new. So I think all of those are positive aspects of the deals and pipeline.

Next question is from the line of Jonathan Lee from Guggenheim Partners.

Just a clarification on what you had called out earlier in terms of what's contemplated in the range of outcomes. Is it fair to assume that the midpoint of your outlook contemplates a slight deterioration in demand environment?

So Jonathan, as I mentioned earlier, we developed several models that lead to different ends of the guidance. These models are not designed to converge on a midpoint of the guidance; that is simply a result of the process. At the lower end of the guidance, we have factored in higher uncertainty from our current position. At the upper end of the guidance, we assume a stable environment. There will be multiple models that lead to various figures in between those ends of the guidance. This is how we consistently determine the guidance range, with the midpoint being a result of both ends.

And just as a follow-up, can you help decompose what you saw in terms of client demand as you progressed from April through June and whether any of those trends have continued into July?

This is Salil. We are seeing significant client interest in AI, particularly in the capabilities we offer as agents and our work with large enterprise AI platforms and small language models. There are ongoing discussions and project initiatives in these areas as part of broader programs. We're also noticing heightened interest in the consolidations we've previously mentioned, alongside a focus on cost efficiency. For instance, there is strong demand in foundational enterprise AI related to cloud, data, and analytics, especially in the emerging SaaS data model and data platforms. Additionally, there is good momentum in enterprise applications as companies transition to new generations of SaaS platforms on an enterprise scale. However, due to the current economic environment, particularly in sectors like logistics, consumer products, and certain areas of manufacturing and automotive, we are observing some constraints. Overall, it's a combination of these factors.

Next question is from the line of Surendra Goyal from Citi.

Salil, Jayesh, just one question, and sorry to kind of focus on the same point. So the slight lowering of the upper end of the organic guidance, is it due to taking a more conservative view of the environment? Or something that you actually saw on the business ramp down, slower ramp-ups, discretionary declining faster, not picking up? Something on the business? Or is it just taking a more cautious conservative view of the environment?

No, Surendra, I believe it goes back to what I mentioned at the start of Q1. We indicated that the upper end of the guidance reflects a slightly improving environment. With one quarter behind us and clearer visibility into Q2, we don't see significant changes in the environment, which is also evident from other results. All these factors are reflected in the upper end of the guidance today. What we have included in the upper end of the guidance assumes a steady environment. As I mentioned earlier, the first half of the year is stronger for us than the second half. Once the stronger part of the period passes in this uncertain environment, our ability to positively adjust the guidance at the upper end becomes more limited.

Next question is from the line of Rishi Jhunjhunwala from IIFL.

Two questions here. Firstly, if you look at the overall wage hike impact that has played out over the past two quarters, almost 240 basis points, it seems like it is relatively higher than where the industry has been. And of course, the growth has been fairly muted for us and for the industry as well. So just wanted to understand the thought process behind that kind of a wage hike. And is it fair to assume that with that we would not see any other action in FY '26?

So Rishi, the wage hike has been phased out. As you know, it has been mentioned into two phases. A large part of our organization up to the middle level of employees got a wage hike in January and the rest of the employees got the wage hike effective 1st April. What I called out as 100 basis points in this quarter is a combination of wage hikes as well as higher variable pay that we paid to our employees. So that's a combination of both of those factors. We haven't really split that out, but that is the overall wage hike. The wage hike, as we said at the beginning of the year, are relatively similar to the wage hikes that we have done in the earlier years in terms of percentages, etc. Coming to the second part of your question, I think it's too early. We just have begun the year. We have had a wage hike effective this quarter. We haven't really decided when about the next wage hikes at this point in time. We take multiple factors when we consider the wage hikes, including market scenario, inflation, peer practices, etc. We will take a call at the appropriate time.

Fair enough. And the second question is some of these vendor consolidation and GCC kind of deals that we have won. Just wanted to understand, are these any different in nature when it comes to the kind of upfront investments that are required either on the P&L side or on the balance sheet side versus, say, some of the large deals we have done a few years ago?

See, if you look at the commentary that I gave in terms of cash flows, we are still continuing to believe that we will generate 100% plus conversion of our free cash flow to net profit. We've already had five very strong quarters of cash generation, and we're still expecting that to continue for the rest of the year. So obviously, these are not impacting our balance sheet or cash flow from that perspective. We expect these to be the regular deals with the regular counters of the lease. So these are not significantly different from that perspective.

Next question is from the line of Sandeep Shah from Equirus Securities.

Congratulations on a very solid quarter. Just Salil, I wanted to understand the commentary about vendor consolidation deals has been bullish, not just by you or others. And it seems that Infosys is winning a higher share versus some of the peers. So considering that, and this may continue going forward, one can assume that TCV can continue to remain healthier in the coming quarters as well because vendor consolidation deals are larger in size?

This is Salil. I think typically, we don't give a comment on the large deals' value in the future quarters. As Jayesh was sharing earlier, the pipeline for large deals is in a good place. We see that we are benefiting from, as you were describing, on consolidation and then some of the other areas on AI, enterprise AI. We don't have a view on what that value will be for the next three quarters by quarter. But overall, we feel good about where the pipeline is. We see mega deals in that pipeline. But that's where we would leave it.

Okay. Fair enough. What needs to change for clients to begin spending on discretionary items beyond just an improving macro environment? Have there been any discussions with clients that indicate potential positive developments on the discretionary front, perhaps not in the immediate term, but possibly by the end of fiscal year '26?

So there, again, we have not, in that sense, have a view on where or when that would happen. What we do see is clients are quite comfortable working with us on enterprise AI programs, on cloud, on data analytics, on enterprise applications, and this what we've discussed a little bit in more depth on the consolidation programs. There's still quite a lot of attention on cost and efficiency. We will see how and when the clients change their thinking on some of the other points you mentioned.

Okay. Okay. And the last question, Jayesh, I think in the press, you also mentioned that the aspiration to improve EBIT margin in this year over last year continues to remain. With Q1 being lower than 21.1%, which was the margin in FY '25, is it fair to assume we can still aspire to improve margin quarter-on-quarter in the rest of the three quarters that will take us to better margin year-on-year in FY '26? So what would be the levers apart from likely decline in the third-party equipment for service delivery?

So, Sandeep, we are just a quarter into the year, and during this time, we've implemented a compensation increase, which has been a significant challenge we've had to manage. Moving forward, we have several advantages from initiatives like Project Maximus and value-based selling that will certainly benefit our margins as we see a reduction in third-party costs. However, we will also face challenges from large deals that require transitional costs without immediate revenue. These are considerations we need to weigh throughout the year. At this moment, as I mentioned earlier, our goal remains to enhance our margins from their current levels.

Next question is from the line of Vibhor Singhal from Nuvama.

Congratulations on a solid growth this quarter. Salil, my question pertains to your outlook, which indicates minimal improvement, and that's reflected in the current guidance. In your discussions with clients, what conclusions can we draw? The tariff situation seemed crucial when we provided our guidance at the end of Q4. The July 9 deadline has passed, and we are now approaching the August 1 deadline. We have also reached a trade agreement with Japan. Do you believe that if these trade deals are finalized in the coming months or quarters, client spending could resume quickly? Might there also be a potential for clients to restart discretionary spending? Or do you believe this situation is more structural? It could depend on how the U.S. economy grows and how clients decide to allocate their spending among other factors. Is it a combination of these elements, or could an improvement in the tariff situation potentially lead to the resumption of spending that has been deferred?

So this is Salil. I think those are important questions. We see interest from clients across industries in leveraging new enterprise AI technology. Much of this is aimed at improving productivity and exploring new business methods that will drive their own growth and increase our revenue. The foundation of this interest includes a strong focus on cloud solutions, robust data infrastructure, and the integration of enterprise applications into cloud environments. There is also consideration of where GDP growth and economic activity are heading. We aim to address the current interest in cost and efficiency, which suggests benefits from consolidation. We are positioned to capitalize on this, alongside enterprise AI and other areas. Regarding timelines, we will assess this year based on current observations, and at the end of each quarter, we will adjust our outlook according to any changes in overall activity.

Got it. Now just one last bit from my side since you mentioned the interest in AI. Is the current AI cycle very similar to the digital adoption cycle we experienced in 2015 and 2016? Do you think the level of client interest is comparable? The trajectory the industry followed at that time initially saw the cannibalization of IMS and other revenues by cloud adoption, but then gradually gained momentum. Could the AI cycle follow a similar path? Any thoughts on that would be really helpful.

In my opinion, every major technology shift changes how enterprise clients make decisions. Each tech cycle has unfolded in its own way, whether it's the current cycle, the previous one focused on the Internet, or even earlier developments. The significant factor is that large enterprises are already navigating a landscape of various technologies. For any technology to have a considerable impact, it must not only be distinctive—like we believe enterprise AI is—but also integrate well with the existing ecosystem. I can't predict whether this cycle will resemble past ones or be markedly different. What is clear is the substantial interest from clients in enterprise AI, along with the foundational capabilities they require, such as cloud and data, which we excel at. We are also well-equipped to handle enterprise AI as it develops. The scale and timeline within the enterprise technology landscape today are much broader than in the last decade, indicating that many changes are still necessary. Overall, I'm optimistic about the future, but classifying it as similar or different from the past is challenging for me.

Next question is from the line of Apurva Prasad from Franklin Templeton.

Yes. Salil, the outlook that you have for the rest of the year is more a function of spend velocity related to client uncertainty? Or is it more of the structural AI-related productivity prospect?

Can you repeat that, please? What was it? Apurva, if you can repeat the question?

Yes. Am I audible now?

Yes, yes, go ahead.

Yes. Yes. So Salil, I'm asking if the implied outlook for the remaining part of the year, is this more a function of macro and client tech overall spend related uncertainty that you're referring to? Or is it more of the structural AI-related productivity impact that you did share some numbers of 5% to 15% related benefits that are being passed through AI programs?

This is Jayesh here. This is more about the macro uncertainty that we are seeing, right? As I talked earlier, we haven't really seen the environment improving from where we were at the beginning of the year. The tariff-related uncertainties still continue, and the geopolitical uncertainty is still there. The client behavior hasn't changed. Many of the clients are still in a wait-and-watch mode when it comes to discretionary spending, etc. We haven't really seen the environment change during this most strong part of the period, the seasonally strong part of our business.

All right. And if I still want to understand the AI-related productivity impact that you are facing already, is there any geo or vertical specific trend that you see here, perhaps more in North America and Hi-Tech? Is there any such trend across geographies and verticals?

On the AI, we see good adoption in many places. So there's not like one thing which will stand out. But one of the sort of comments we shared earlier was like in Financial Services, if you look at our largest clients, half of them now, we have become their AI strategic partner. It's a key, key, I would say, positional advantage that I think Infosys has there.

Next question is from the line of Ashwin Mehta from AMBIT Capital.

Two questions. One, Jayesh, in terms of the depreciation and amortization going down by almost 50 bps, what has been the driver of that? And the second is in terms of SG&A bump up that we have seen, which is almost 90 bps this quarter. So is it more sales aggression that is driving it? Or are there any, say, one-off events which possibly led to a material bump up? Sorry. Can you hear me?

Yes, I can hear you. Regarding the depreciation and amortization, last quarter we had a one-off related to amortization of intangibles from one of our acquisitions, which affected it by 40 basis points. This quarter, the absence of that one-off shows up as a 40 basis point difference. Additionally, there is some currency impact. As for SG&A, several factors contributed. The compensation increase we implemented in Q1 had an effect, as did the variable pay. We also hired for sales and marketing to enhance our growth trajectory, which I noted as a 20 basis point investment in sales affecting margins. Moreover, our spending on brand building and events this quarter also played a role. All these factors are reflected in SG&A.

Next question is from the line of Abhishek Pathak from Motilal Oswal.

Team, congrats on a good quarter. A couple of questions. Just firstly, on the inorganic contribution. So the 40 bps impact that you are referring to, is this entirely from the acquisitions consolidated in this quarter? Because if I were to assume some residual impact from in-tech, the full year inorganic number comes out to be slightly higher. So just that clarification will be helpful. And the second question is there was a commentary around how discretionary spending is being kind of bankrolled entirely by the savings made by AI. So just wondering, is this going to be sort of a structural trend where there is going to be cannibalization going forward regardless of how the demand improves? Will the clients expect us to just keep self-funding the discretionary initiatives based on these gains? Or is there a more structural demand recovery built in, let's say, post the next 12 to 18 months, where the clients do need a serious amount of investment in their data and their tech stack to modernize? Those are two questions.

The 40 basis points I mentioned is on a sequential basis. The 2.6% figure includes 40 basis points from acquisitions we made this quarter, specifically MRE and The Missing Link in Australia. This contributed approximately 40 basis points to the 2.6%. The acquisitions were completed last year.

Yes, I think I was just referring to your comment in the press conference where you said, even the full year impact will be 40 bps and hence, the confusion.

Yes, in-tech was essentially present for almost all of last year. Therefore, when considering the full year, the impact isn't significantly different. That's why I mentioned it would have a similar effect for the year overall, when you factor in a couple of months of in-tech and approximately 11 months of both MRE and Missing Link.

Next question is from the line of Bachman from BMO.

This is Keith Bachman from Bank of Montreal. My first question is your headcount was relatively flat quarter-on-quarter, including software professionals. How do you think about headcount trends through the year?

So Keith, we were able to increase our utilization this quarter by 30 basis points. So that helped. Part of our growth, as I mentioned earlier, came on the back of the pricing increase, including the seasonality in the business. That has helped as well. But as we go forward, whatever volume growth will come in, considering we are operating at peak headcount, that would need additional headcount either through subcontractors or our own employees in terms of efforts.

Okay. Perfect. My second question is about headcount. I was wondering if you could break the cycle of increasing headcount faster than your efforts. It seems that while AI might assist, the answer is no for the next couple of quarters. The second question relates to your delivery model. How do you see your delivery model changing over the next year regarding FTE-based contracts versus more success-based or fixed-price contracts? Do you think the advent of more AI capabilities might influence or cause changes in your delivery model?

So Keith, if you look at the delivery model, I don't think it will change in a short period of a couple of quarters. Over a longer period of time on the back of AI, etc., we may expect some part of newer pricing models emerging. It could be an outcome-based pricing model. It could be broad-based or studio-based pricing model, etc. Various new pricing models are emerging but as we speak, I don't think over the next year or so, the entire model is going to change, the change will happen gradually in my mind.

Ladies and gentlemen, we will take that as our last question. I'll now hand the conference over to the management for closing comments.

Thank you. Thank you, everyone, for joining us. It's been a fantastic quarter for us. Strong growth, large deals, a very good focus on enterprise AI consolidation, but also good on cloud and data work. We see this as a differentiated performance with what we have done, which is much more positioning Infosys in that leadership area. We look forward to a good rest of financial year '26 and connecting with you through the quarter and at the end of this quarter as well. Thanks, everyone. Take care. Bye.

Thank you very much, members of the management. Ladies and gentlemen, on behalf of Infosys, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.