Why Infosys Share Price Rose Nearly 5% Today Despite Lower Profits

Infosys shares jumped nearly 5 percent today as investors reacted positively to the company’s Q3 FY26 earnings announced after market hours in the previous trading session. At first glance, the results showed pressure on margins and profits. 

However, a deeper look reveals that a large part of the profit decline came from a one-time exceptional charge related to India’s new labour codes. Once this is factored in, the core business performance appears far more stable, which explains the strong rally in the stock. Let’s break this down in detail.

Infosys Q3 FY26 Earnings Overview

Infosys reported a steady revenue performance in the third quarter of FY26, indicating stable demand despite a mixed global environment.

For the quarter ended December 31, 2025, consolidated revenue stood at ₹45,479 crore, registering a year-on-year growth of 8.9 percent compared to ₹41,764 crore in Q3 FY25. Revenue also grew 2.2 percent on a quarter-on-quarter basis from ₹44,490 crore in Q2 FY26.

In constant currency terms, Infosys reported a quarter-on-quarter growth of 0.6 percent and a year-on-year growth of 1.7 percent. This is an important indicator as it shows that growth was driven by actual business demand and not just favourable currency movements.

Understanding the Exceptional Item Linked to Labour Codes

A key highlight of Infosys’ Q3 results was the booking of an exceptional item of ₹1,289 crore related to the impact of India’s new labour codes.

These labour codes change the definition of wages and increase statutory liabilities such as gratuity and other employee-related benefits. As per accounting rules, companies are required to recognise the cumulative impact of such changes immediately in the profit and loss statement.

Infosys recorded this impact as a one-time exceptional charge. This means it is not linked to the company’s day-to-day operations or future earnings potential. Importantly, this charge had a direct and significant impact on reported profits for the quarter.

Margins and Profitability: Pressure Was Largely One-Time

Operating profit came in at ₹8,355 crore, down 6.3 percent year-on-year, while operating margin declined to 18.4 percent from over 21 percent in the year-ago and previous quarters. Part of this margin pressure was operational, but the exceptional labour code-related charge also played a role in pulling down overall net profitability.

Net profit declined 2.2 percent year-on-year to ₹6,654 crore and fell 9.6 percent sequentially. However, this decline needs to be seen in the context of the ₹1,289 crore one-time exceptional item. Excluding this impact, the underlying profit performance would have been materially stronger.

Segment and Geography-wise Performance

Financial Services remained the largest revenue contributor at 28.2 percent of total revenue, though growth remained moderate. Manufacturing and Communication segments delivered strong double-digit growth, reflecting healthy demand in these areas.

On the other hand, Retail, Hi-Tech, and Life Sciences segments saw a decline, highlighting uneven demand across verticals.

Geographically, North America continued to be the largest market but reported a marginal year-on-year decline. Europe stood out as a strong growth region with a 13.3 percent increase in revenue, contributing 32.7 percent to overall revenue. India revenue declined, while the rest of the world reported modest growth.

Large Deal Wins Improved Future Visibility

Infosys reported strong large deal wins worth $4.8 billion during Q3 FY26. Notably, 57 percent of this total contract value came from net new deals, pointing to fresh client additions and new project wins.

The company added 121 new clients during the quarter, taking the total active client count to 1,949. Revenue contribution from top clients remained stable, suggesting that growth is not overly dependent on a small set of customers.

Why Infosys Share Price Rose Today

The rally in Infosys shares was driven by investors looking beyond headline profit numbers and focusing on the quality of earnings.

While reported profits declined, a large part of this drop was due to the one-time labour code-related exceptional charge. Since this impact is non-recurring, investors were willing to discount it while assessing the company’s future earnings potential.

Steady revenue growth, constant currency expansion, and strong large deal wins reassured the market about demand stability. Europe’s strong performance helped offset weakness in other regions, reducing geographic risk.

Margin pressure was largely expected and partly linked to the one-time labour code impact, which further reduced downside surprise. As a result, the market reacted positively, leading to a sharp rise in the stock.

Key Takeaways for Investors

• The nearly 5 percent rise in Infosys shares reflects confidence in core business performance rather than headline profit numbers.
• A ₹1,289 crore exceptional charge linked to labour codes significantly impacted profits but is one-time in nature.
• Revenue growth and constant currency expansion indicate stable underlying demand.
• Strong large deal wins improve revenue visibility for upcoming quarters.
• Margin pressure remains a near-term concern, but the worst impact from labour code changes is already accounted for.

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