Shares of Infosys slumped over 5 percent on January 17, tracking the near 6 percent plunge in the American Depository Receipts (ADRs) of the company listed on the New York Stock Exchange (NYSE) overnight. While the information technology major's October-December earnings came in ahead of market estimates, its revised revenue growth guidance, hinting towards a weaker Q4 may have triggered the fall.

Infosys saw strong deal wins in Q3, prompting the management to revise its FY25 revenue growth guidance to 4.5-5 percent in constant currency terms. However, analysts, including Jefferies, flagged that while FY25 revenue guidance was raised to reflect the Q3 beat, the unchanged ask rate for Q4 signals potential seasonal weakness.

Echoing a similar sentiment, BoFA Securities forecasted a 1 percent sequential revenue decline in Q4, driven by potential reductions in third-party items or cautious management positioning.

Addressing these concerns, the management acknowledged the expectations of a softer Q4 during the post-earnings call, citing slight furloughs, fewer working days, and reversal of third-party revenue as headwinds for the ongoing quarter.

Alongside that, uncertainty around the margin impact of the company's wage hike regime, planned to be rolled out in two phases, also added a layer of concern among investors. The company rolled out the first phase of its wage hike on January 1 while the second is lined up for April 1. Accordingly, the firm stated that its margin impact will be felt in Q4 FY25 as well as Q1 FY26, but refrained from providing clarity over the quantum of the impact.

At 09.16 am, shares of Infosys were trading at Rs 1,839 on the NSE.

Aside from these concerns, the other facets of Infosys' Q3 earnings and commentary remained positive. Infosys reported a 4.6 percent sequential increase in consolidated net profit for Q3, coming at Rs 6,806 crore compared to Rs 6,506 crore in the previous quarter. Revenue rose by 2 percent in rupee terms to Rs 41,764 crore, up from Rs 40,986 crore in Q2. A Moneycontrol poll of nine brokerages had pegged the IT major's net profit at Rs 6,734 crore and revenue at Rs 41,206 crore for Q3, with the company surpassing estimates on both parameters.

The company’s EBIT margin improved by 20 basis points sequentially to 21.3 percent, with the FY25 EBIT margin guidance maintained at 20-22 percent.

Infosys also reported a Q3 large deal Total Contract Value (TCV) of $2.5 billion, with 63 percent of the deals being net new, slightly exceeding the previous quarter’s $2.4 billion despite seasonal challenges. “An improved deal pipeline gives us greater confidence as we look ahead,” said CEO Salil Parekh.

The management is also seeing improvement in discretionary spend in the financial services vertical in Europe and retail and consumer segments in the US, which according to brokerages, was the key positive from the company's Q3 earnings.

The management noted improvements in discretionary spending within the financial services vertical in Europe and the retail and consumer segments in the US, further bolstering its growth outlook.