Synopsis: The H-1B visa fee has escalated to more than 6,500%, leading to a short-term decline in Indian IT stocks. Companies such as TCS, Infosys, and HCL Tech are likely to remain stable as the sector is expected to be resilient due to the increased number of local hires and offshore delivery.
NIFTY IT reported one of its worst sessions today. It plunged over 3 percent or 1,069 points, following Trump’s H-1B visa fee hikes. Coforge, LTIMindtree, Mphasis, Persistent, and Tech Mahindra took the hardest hit due to their large exposure to this update.
About the announcement
India’s $283 billion information technology industry, which is responsible for about 57 percent of the total revenue from the U.S., has immensely leveraged U.S. work visa programs and the offshoring of software and business services.
Since 2004, the number of H-1B visa petitions has been limited to 85,000 annually. There used to be some administrative fees of around $1,500 associated with H-1B visas. According to the latest comments by Donald Trump, H-1B recipients must pay $100,000 (Rs 88 lakh) for the visa, which is an over 6,500 percent increase from the earlier amount of around $1,500 (Rs 1.32 lakh). However, the fee hike will apply only to new applicants and not to existing H-1B visa holders
But what is H1B and its significance?
The H-1B program is a U.S. visa scheme that facilitates American companies in recruiting highly qualified and trained foreign nationals to fill technically skilled jobs in the U.S. The term “specialty job” is used for a work scope that is required to be handled by a person with a deep understanding of the topic and generally having at least a bachelor’s degree. The scheme is a solution for employers to avoid the American workers’ shortage problem and let top foreign professionals work in the United States temporarily.
Specifically, the H-1B visa has been the main factor contributing to the success of Indian IT companies. The reason is that these organizations set up offices in the United States and employ a large number of qualified workers. The majority of them are Indian, and people who come from other countries.
The use of the program is to allow them to take up customer orders and do the required IT and business work. On the other hand, the requirements also come with conditions that foreign workers receive a living wage and that domestic American workers receive their legitimate rights.
In that situation of H-1B absence, the Indian IT companies would find it difficult to establish their employees in the U.S., which is the major market for them. Consequently, the visa program has thus been a major source for the sector of Indian IT, worth $283 billion, to grow.
CLSA anticipates a scenario in which earnings take a hit of up to 6 percent for the fiscal year 2027, in a case where the entirety of the new applications is paid by the companies. Nevertheless, they emphasize that a novel application only is considered for the imposition of charges, thus the number of renewals puts a restriction on the adverse impact.
Large-cap companies like Tata Consultancy Services (TCS) are to be in a better condition to soak up the increase in the fee due to their local employee base and established hiring channels in the U.S. He also adds that the possibilities available to companies under such circumstances are a few new filings first, then delivery offshoring or local hiring if the new fee is too high.
Nuvama Institutional Equities shares the view that though the hike in fees may be a negative for Indian IT operations, the impact should be kept at a minimum, and the company could use strategies like higher offshoring and local hiring as a trigger for business growth to overcome it. Emkay Global Research states that the company’s fundamentals that drive stock prices will not be disturbed much by protectionism fears; however, the stocks could experience a short-term market reaction.
Dam Capital Said that, assuming one-third of H-1B employees are replaced with local hires, the impact on EBIT margin is likely to be 20–50 basis points and 2–4 percent on earnings per share (EPS).
Major Indian It firms have greatly reduced their reliance on the visa program. TCS, which earns a major chunk of its revenue from US hires over 50 percent of its workforce locally. Its rival, Infosys, accounts for 60 percent local hiring, followed by HCL Tech with 80 percent and Tech Mahindra with 70 percent.
Despite the fact that the fee for the H-1B visa has increased by more than 6,500 percent and has had a negative effect on Indian IT stocks in the short term, the long-term impact of the industry is still expected to be minimal.
Large IT companies have already gone through the process of recruiting more local workers in the United States and have turned to their offshore delivery to lower their reliance on the new H-1B visas. With these moves, together with sound budgeting, the Indian IT companies are not only capable of embracing the change but also continuing their upward trajectory, which is a clear indication of the sector’s resilience and adaptability.
Written by Satyajeet Mukherjee
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