IT sector gets US presidential debate relief

China and Mexico figured in the debate, in keeping with Donald Trump's campaign and his plan to get jobs back to America

The $146-billion Indian information technology (IT) services industry could well heave a sigh of relief in the first presidential debate between Republican Party candidate Donald Trump and his Democratic Party rival Hillary Clinton did not have any mention of job losses because of the industry or the H1-B visa issue.

However, China and Mexico figured in the debate, in keeping with Trump’s campaign and his plan to get jobs back to America. During the campaign, Trump had been vocal on H1-B visas and had proposed to raise the minimum wage for this most-popular visa for Indian IT professionals.

The 90-minute debate saw Trump stressing on companies moving out of the US to China and Mexico for setting up manufacturing hubs.

When asked how Trump was a better candidate to put money back into US citizen’s pocket, he said: “Our jobs are fleeing the country. They're going to Mexico. They're going to many other countries. You look at what China is doing to our country in terms of making our products. They're devaluing their currency, and there's nobody in our government to fight them.”

“No leader will want jobs to go out of their country and that is what was reiterated by both the candidates. It is very generic,” said R Chandrashekar, president, Nasscom. However, he said American corporates attempts to stay competitive, and this is in part aided by the Indian IT sector.

Chandrashekhar said the preoccupation with immigration in the election is focused on those who move illegally and unskilled labour, which impact the average salary. “In the larger debate, skilled worker and H1-B visa is relatively a smaller issue. Rather, all respective authorities have acknowledged that there is a shortage of educated people in the US,” he added.

“I think the US also realises that what Indian IT industry contributes just adds to the competitive edge of the US corporates. Look at the industry and you see the change. These day’s conversation is no more about headcount or how many people being added but on platforms, technology etc.,” said Ganesh Natarajan, former chief executive officer Zensar Technologies and chairman of Nasscom Foundation.

Trump further added: “We have to stop our companies from leaving the US and, with it, firing all of their people. All you have to do is take a look at Carrier air conditioning in Indianapolis. They left, fired 1,400 people. They're going to Mexico. So many hundreds and hundreds of companies are doing this.”

As for Clinton, her focus was on small and medium industries and jobs in infrastructure, advanced manufacturing, innovation and technology, clean, renewable energy, and small business, because most new jobs will come from small businesses.

India and tech job losses have been a part of the US presidential elections for several years.

Impact of Trump victory

However, analysts at Nomura had earlier predicted that Trump victory could cast a shadow on the fortunes of IT companies, which may be negatively affected by immigration and outsourcing policies.

“An H-1B crackdown under Trump would lower the profitability of Indian IT companies (due to higher wage costs) while potential restrictions on business process outsourcing (BPO) could also hurt revenues,” the report suggests.

Expecting an initial negative market reaction, analysts at Nomura prefer exposure to military equipment makers, defensive stocks and yield plays as a global investing strategy; and recommend an ‘avoid’ on companies that have US exposure in China industrials, Indian IT and Korean auto stocks.

As regards the debt market, Nomura expects India rates markets to remain supported despite a Trump victory with local idiosyncratic factors remaining more important. A Donald Trump victory, Nomura says, would make central banks shift their bias further towards easier-for-longer policies.

Rates markets in Korea, India, Malaysia and Australia would benefit in such an environment, Nomura says, while Hong Kong and Singapore are likely to underperform US rates. An expectation of a more dovish US Federal Reserve (US Fed), combined with poor risk sentiment, would likely lead to a flattening bias in regional rates curves.

“At this early, speculative stage, our analysis indicates that South Korea and the Philippines would be among Asia’s most vulnerable in terms of both economic and geopolitical channels, while India and Thailand seem among the least exposed,” the report says.