IT stocks: Street shrugs off Trump's extension of ban on H1-B visas

Work-from-home and increased local hiring should help mitigate its impact

The stocks of major IT companies,  among the key users of H1B visas, were up by as much as 3 per cent on Tuesday, despite US President Donald Trump extending the suspension of work visas until the end of December. The BSE Sensex closed 1.5 per cent higher on Tuesday.

The reason for the Street shrugging off the H1B visa news, analysts say, is that Indian IT companies don’t see any material impact due to the extended suspension, which most see as a temporary measure. Factors, such as increased local hiring by IT players and the work-from-home model, should help mitigate the impact of the visa suspension.

Given the sharp fall in visa approval rates, mainly for new applicants, many domestic IT companies had already increased local hiring (mainly in the US) since the past couple of years. The majority of tier-1 IT firms now have over 60 per cent of their employees on-site, barring Tata Consultancy Services (around 50 per cent) and Tech Mahindra (about 45 per cent). This minimises the work disruption because of Trump's measure. Moreover, due to higher H1B wage rates in key US regions, companies are moving to low-cost destinations, such as Texas, Florida, and Virginia, said analysts at HDFC Securities in a report issued in March.

 

 

Though the dependency on H1B visa workers is still sizeable at 40-50 per cent, analysts do not see the ban extending after the US presidential election in November. “We note that the noise around H1B visa usually gets elevated because of political rhetoric during the year of US presidential election; a similar kind of thing happened in 2006,” opines Aniket Pande, an analyst at Prabhudas Lilladher. Pande believes tier-1 IT companies are in a good position to manage supply constraints because of further restrictions on H1B visas, provided these restrictions stay for a brief period.

What’s also proving helpful for IT firms is their work-from-home model. Because of travel restrictions and the lockdown, most onsite work is managed from home by IT firms. According to Sanjeev Hota, head of research at Sharekhan, “With successful services to onsite customers from the work-from-home mode and weak demand environment, the suspension of new visas does not have any meaningful impact on IT vendors.”

However, there would be trouble if the suspension period is again extended, or if it gets extended to H1B visa renewals. In the case of the latter, it will impact margins of IT companies as they may not be able to fully pass on higher localisation costs in the current situation, where clients are cautious on discretionary spends.