The announcement of a 20-fold rise in the H-1B visa fee by the US government on Friday is expected to hit information technology (IT) stocks further in the near term at a time when they have already been under pressure due to lower-than-expected earnings growth and tariff threat. After the announcement, American Depository Receipts (ADRs) of Indian IT companies fell sharply on Friday, with Infosys falling 3.4% and Wipro down 2%.
Sharp Market Reaction Expected
Omkar Tanksale, an IT sector analyst, expects up to 6% fall in the shares of IT companies due to the news. He noted that the sector is largely dependent on North America, as more than 50% of average revenue comes from there. Shares of companies that are less dependent on the US like KPIT Tech and Cyient may see less impact, he added.
Ajit Mishra – SVP, Research, Religare Broking, said that in the coming week, markets will first react to the US President’s executive order imposing an annual fee of $100,000 on H-1B visas. He said, “While export-driven sectors are already grappling with tariff-related pressures, this move could further weigh on IT services exporters at a sensitive time when trade negotiations remain underway.”
Sector Outlook and Investor Strategy
Sector experts also noted that this will accelerate near-shoring and increase cost of onshore delivery in the US. Siddarth Bhamre, head of institutional research at Asit C Mehta, this will add to the already negative sentiment in the sector due to the overall slowdown, higher valuation, and the tariff impact. In the last one-year Nifty IT index has fallen more than 13%. On Friday, it had closed 0.5% lower at 36,578.25.
While the H-1B impact will likely be seen in Monday’s trade but he expects the companies to adapt to it, a bigger concern is earnings growth. In the mid cap space, markets were factoring in a 20-25% growth, only 10-15% has happened, Bhamre said. “The overall structure is going through a paradigm shift and we are not prepared for that,” he said, advising investors to consider buying after a further correction.
According to him, Indian IT companies are far behind in terms of innovation and the services they provide are not in the upper half of the pyramid.
Tanksale also said that in the long-run, investors should wait for a 10-15% correction before jumping in to buy. Likely cross border negotiation and macro-level uncertainty reducing will lead to an immediate spike, he said and added that he prefers the midcap names over large caps.