Indian IT Stocks Tumble After H-1B Visa Fee Hike, Firms Plan Mitigation Strategies

Reports indicate that Indian IT stocks plummeted after US President Donald Trump passed an executive order to raise fees on new H-1B visa applications to $100k from $1500. The Nifty IT Index slid nearly 3% following the news. Tech Mahindra, Infosys, Tata Consultancy Services (TCS), Wipro, and HCL Technologies dipped by over 3% each, with Tech Mahindra leading the decline by 6.5% to an intra-day low of Rs 1,453.30. However, brokerages like Nuvama, Motilal Oswal, and JM Financial consider the impact to be short-term and more of a knee-jerk reaction, with most being optimistic about earnings and growth in the long term.

Key Takeaways:

• Nuvama Institutional Equities expects Indian IT companies to mitigate the impact by increasing nearshoring, offshoring, and/or hiring local talent, with most choosing not to pay the higher fee due to its economic unviability.
• The brokerage suggests renegotiating contracts with clients through three options: sharing higher costs, hiring more local talent, or higher offshoring to destinations like Canada or Latin America.
• Over the last eight years, the industry has significantly reduced its reliance on H-1B visas, with some near-term impact on operations and financials necessary for companies to bear.
• In the long term, higher offshoring is likely to mitigate a large part of the impact, with costs being offset by improved operating margins and reduced costs.
• Motilal Oswal Financial Services believes the shift to on-site costs and revenues could improve operating margins, with the net effect on EPS being neutral in the medium term.
• JM Financial predicts two scenarios: either replacing all new H-1B requirements with local resources and moving towards 100% non-visa dependence or substituting 50% of H-1B base with local hires and offshore the remaining H-1Bs.
• The UK is considering scrapping visa fees for top global talent, as reported by the Financial Times, with Prime Minister Keir Starmer's "global talent task force" evaluating options to attract top talent from across the world to the UK.

Statistics:

• Nifty IT Index down nearly 3% after US President Trump passed an executive order to raise fees on new H-1B visa applications.
• Tech Mahindra declined as much as 6.5% to an intra-day low of Rs 1,453.30 on the National Stock Exchange.
• Infosys fell 3.8% to a low of Rs 1,482.
• Tata Consultancy Services (TCS), Wipro, and HCL Technologies dropped over 3%.
• H-1B visa fee hike from $1500 to $100k.
• Estimated 15-50 basis points margin impact due to $25k/annum wage differential between H-1B and local hires.
• UK considering scrapping visa fees for top global talent, as reported by the Financial Times.

Sources:

• Nuvama Institutional Equities
• Motilal Oswal Financial Services
• JM Financial
• Financial Times