H-1B Visa Fee Hike Impact: Brokerages Predict 2-4% Earnings Hit For Indian IT Firms
Citi Research believed that HCLTech and Infosys are better placed as they have already adopted localisation as the most important strategy.
Indian technology companies will likely see their operating expenses rise in the medium term after US President Donald Trump issued a proclamation to hike the visa fee of H-1B visas. Indian IT companies will also increase offshoring and local hirings as well, analysts and brokerages said.
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% on earnings per share, Dam Capital said.
Cyient Ltd. and Tata Consultancy Services are likely to see the least impact among peers, according to brokerages. Citi Research believes that HCLTech Ltd. and Infosys Ltd. are better placed, as they have already adopted localisation as the most important strategy.
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Trump's proclamation is effective for new visa applicants on a prospective basis. The fee of $100,000 is on an application basis, not on a per-year basis. Generally, once approved, H-1B visas are valid for three years and can be extended up to three years, Morgan Stanley said.
As the visa fee is applicable on a prospective basis, Morgan Stanley is seeing limited near-term impact. The medium-term impact will be a key watch as companies take steps to reduce dependence on H-1B visas.
High cost of visas will compel IT companies to increase local hires in the US, resulting in higher employee costs, Citi Research said. As it's an industry-wide issue, a part of the cost hike will be passed onto clients. This will weigh on US corporates. However, Indian IT companies may not be able to pass the entire fee hike to customers, which will hurt margins.
Emkay Global Research believes that such a move is not disruptive to IT companies. Nevertheless, there will be an overhang on stock prices in the near term as investors factor in increased risks of protectionist measures.
