Will Trump's H-1B visa fee hike sink Indian IT stocks?

Mumbai: Investors must brace for a sell-off in Indian IT stocks early this week after US President Donald Trump on Friday sharply raised the one-time cost of H-1B visas to $100,000 (₹88 lakh), rattling sentiment in a sector that had only recently seen signs of a rebound.

Analysts expect IT shares to take an immediate hit when markets open on Monday.

"IT stocks may witness knee-jerk reaction on Monday and can open gap down with cut of 1-3%," said Sunny Agrawal, head - Fundamental Research at SBI Securities.

Agrawal, however, noted that the impact is likely to be limited since the new law applies only to fresh visas. The one-time fee will be imposed on new H-1B petitions and is not an annual charge. Existing H-1B holders will not face additional costs for renewals or re-entry into the US, and current visa holders can continue to travel as before.

From a broader perspective, analysts view the move as highlighting deeper challenges for the Indian IT industry.

"Now companies will either shift jobs to India or charge more. From a medium to long-term perspective, it's negative for IT," said Siddarth Bhamre, head - Institutional Research, Asit C Mehta.

Agencies

According to analysts, the new rule marks a significant shift in the economics of deploying Indian tech talent in the US. IT firms may accelerate offshoring to India or hire more locally, but both options could weigh on profitability. For larger players such as TCS, Infosys and Wipro, the near-term cost escalation is seen as manageable, but mid-tier companies with greater dependence on fresh H-1B approvals could feel a sharper impact.

"Cost arbitrage between sending Indian employee vis-a-vis hiring locally (in US) will reduce substantially and, hence, companies need to re-work on hiring and pricing strategy to offset the impact of the changes in rules. If new rules are applicable to the existing H-1B holders too, then the impact can be profound and pressure on margins can be between 100-400 bps. The probability of the same seems to be low.

Agencies

Year-to-date, IT stocks have endured a volatile ride. TCS has declined 23%, Infosys is down 18%, and Wipro has fallen 14.6%. The sector had been under pressure in the first half of the year amid global demand concerns and weak earnings commentary, but had rallied in recent weeks after conciliatory remarks from Trump on tariffs raised hopes that the worst was over. The latest visa announcement threatens to derail that recovery, at least in the short term.

For investors, advice remains mixed. Agrawal said existing investors need not rush to exit.

"Existing investors should not panic and evaluate the weightage of IT stocks in the portfolio and need to be nimble footed in terms of churning the portfolio. If your portfolio comprises more than 20% weight in the IT stocks, it is better to reduce the same gradually and shift to other inward-looking sectors." He also cautioned that new investors should wait for management commentary before entering fresh positions if IT stocks correct sharply.

Bhamre, in contrast, recommends steering clear of IT altogether. "My view is to completely sideline the sector. Some people say mid-cap IT looks strong, but valuations are still expensive. They are not growing at 25-30% topline to command 35-40 PE multiples, they are growing at less than 15%. There is still scope for correction."