Indian information technology majors saw their shares slump on Monday after US President Donald Trump imposed a $100,000 fee on new H-1B visa applications, threatening to inflate costs and slow revenue growth in their biggest market.
The sector, which earns about 57% of its revenue from the US, has long gained from US work visa programmes and the outsourcing of software and business services - a contentious issue for American job-seekers competing with cheaper Indian labour.
The tech sub-index dropped nearly 3% and was the biggest loser on the day. It also dragged the benchmark Nifty 50 0.2% lower.
India was by far the largest beneficiary of H-1B visas last year, accounting for 71% of approved beneficiaries.
"Due to the near-term pressure on margins amid an already tough market, we believe this is sentimentally negative for the sector," ICICI Direct, an online trading platform for ICICI Securities, said in a client note on Monday.
ICICI Securities estimated that Trump's order could knock about 1 percentage point off profit margins and about 6% off earnings for IT firms, assuming they continue to hire Indians under the program.
A '$100,000' curveball
Trump's reshaping of the H-1B program represents his administration's most high-profile effort to rework temporary employment visas.
Jefferies analysts, who called the move a "$100,000 curveball for the Indian IT" sector said the industry has about four to five years to resolve the issue, given the higher fees only applies to new applications.
Other analysts and industry experts said they expected Indian IT firms to reduce reliance on H-1B visas and increase local hiring in the US as well as hiring workers in nearby countries such as Mexico and Canada.
Indian IT industry body Nasscom said H-1B visas issued to the leading Indian and India-centric firms have fallen to slightly more than 10,000 in 2024 from nearly 15,000 in 2015. They expected Trump's order to have a marginal impact on the industry as Indian firms have significantly reduced their reliance on H-1B visas.
Mphasis led losses on the tech sub-index on Monday with a 4.4% slump. IT majors TCS and Infosys were down about 3% each, while Wipro fell 2%.
Trump's order "is among the last things that the sector sentiment needed, amid persistent pressure weighing on growth from geopolitical and macro uncertainties and structural concerns caused by GenAI," said analysts at TD Cowen.
The fresh challenge for the Indian IT sector comes as it awaits clarity on a proposed 25% tax on outsourcing payments and struggles with weak revenue growth in its mainstay U.S. market as clients defer non-essential tech spending amid inflationary pressures and tariff uncertainty.
IT stocks are the worst performers so far this year, falling 18% versus a 7.1% gain in the benchmark Nifty 50 index.
