Infosys

Investment case

Tactical IT floor trade

Why this business

India's second-largest IT services exporter (FY26 revenue Rs 1,78,650 cr / Q1FY27 $5.08 bn) providing application services, cloud (Cobalt), AI (Topaz - 8.2% of revenue in Q1FY27), engineering and BPM to ~1,900 clients, mainly in North America and Europe (financial services, retail, manufacturing, communications). Operating margin 21.1%, FCF conversion 116% of PAT, and a policy of returning ~85% of FCF (FY26 dividend Rs 48/share; Rs 18,000 cr buyback completed Dec-2025).

What we believe

1. 01Cheapest it has been in a decade: 14.2x TTM P/E (Buoyant FY27e 16.6x / FY28e 13.1x) vs 5-yr average ~24x, with ROE 31-40% and ROCE 40% - de-rating has already priced a low-growth AI-deflation scenario.
2. 02Cash returns underwrite the downside: dividend yield 4.4% (FY26 payout Rs 48/share, 68.5% payout) plus Rs 18,000 cr buyback (10 cr shares extinguished Dec-2025); FCF conversion 116% of PAT in Q1FY27 ($955 mn).
3. 03Margin resilience despite pricing pressure: operating margin 21.1% in Q1FY27 (+30 bps YoY) within 20-22% guidance; large-deal TCV $3.6 bn with 61% net new gives visibility even as organic growth is ~0-1%.
4. 04AI is becoming revenue, not only deflation: AI revenues 8.2% of total in Q1FY27 (Topaz/agentic deals); TCS reports a $2.6 bn AI run-rate, showing the tier-1 vendors are capturing the new spend pool.
5. 05Small (0.7%) weight = a low-beta, high-yield 'core' ballast rather than a growth bet; INR depreciation adds to rupee EPS (Q1 INR revenue +14% vs 2.4% CC).

Why now

TTM P/E 14.2x vs Jefferies' cited 5-yr average of 24x and 10-yr average of 20.5x (Mar-2025 note) - a ~40% discount to its own history; stock is -37% from 52-wk high Rs 1,728 after the Feb-2026 AI (Anthropic Claude) sell-off. P/B computed 1087/225. EV/EBITDA not computed (net cash not sourced). EV/EBITDA n.m.; dividend yield 4.4%.

Market disagreement

• TCS: TCS trades at 15.2x with 2.8% yield and 52% ROE but 4.6% PAT growth in Q1; Infosys is cheaper (14.2x), yields 4.4%, and has larger net-new deal wins ($3.6 bn TCV, 61% net new) - Buoyant is buying the discount, not the franchise premium.
• HCLTech: HCL (19.2x P/E, 4.2% yield) grew INR revenue 14% with 16.9% margin; Infosys offers 420 bps higher margin (21.1%) at a ~25% lower multiple, though HCL's products/ER&D mix has the better growth.
• Wipro: Wipro is cheaper (12.9x, 6.4% yield) but has 8% 5-yr sales CAGR, flat Q1 PAT (+0.6%), 16% margin falling from 17.2%, and a 'cautious' Q2 guide - Infosys has structurally higher margin (21%) and ROE (32% vs 15.5%).

Position sizing

Core Large cap  0.7% of the PMS on $31 Jul 2026 (August rank not in top 30). Core positions are owned through the cycle for leadership and cash-flow quality.

Catalysts

• Q2FY27 results (mid-Oct 2026): any narrowing of the guidance band toward the top end (3%) or margin above 21.5% would trigger upgrades from a 14x base.
• FY27 interim dividend (Oct-2026) and possible next buyback given ~85% FCF payout policy and Rs 18,000 cr buyback completed Dec-2025.
• Large-deal ramps ($3.6 bn Q1 TCV, 61% net new) converting into H2 FY27 revenue; AI revenue share moving above 10%.

Risks and response

• Structural AI deflation: if agentic tools compress billable effort faster than new AI spend arrives, organic growth stays ~0% and the 13-16x target multiples brokers now use become the ceiling, not the floor.
• US macro/visa/tariff shocks and client-specific project terminations (PL Capital cited one in Q1) - 60%+ revenue from North America.
• Low promoter holding (13.8%, -0.56% QoQ) means no anchor buyer; DIIs already hold 42.8% so incremental domestic support is limited.

Thesis-break conditions

Not stated separately on this page; the risk list carries the monitoring triggers.

Review history

• 8 Sep 2026 · Yash Palod · one-pager in "Why We Own What We Own" (p49) · portfolio as of $31 Jul 2026
• 31 Aug 2026 · Classification in the August top-30: —

Source: Buoyant_Why_We_Own_What_We_Own_Sep2026.pdf (portfolio as of 31 July 2026), p49. Internal; external publication of these fields is controlled by audience policy.