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News Topical, Digital Desk : Domestic IT stocks witnessed significant turmoil on Monday. The US government increased the H-1B visa fee from $1,200 to $100,000 (approximately Rs 88 lakh). This policy setback caused panic on Dalal Street, and the Nifty IT index, which represents the top 10 largest listed companies in the country's IT sector, fell by nearly 4%.
Not only large IT companies, but mid-cap IT stocks also fell. Over the past decade, Indian IT companies have reduced their reliance on H-1B visas, but Monday's decline once again highlights the importance of this sector.
Why is the H-1B visa important for IT companies?
The H-1B visa has been the foundation for Indian IT companies' success in the US. The US is the largest export market for Indian IT companies. Indian companies account for over 70% of H-1B visa approvals. However, the sudden increase in visa fees from $1,200 to $100,000 could pose a significant challenge for these companies.
Pritish Thakkar of PL Capital said, "This isn't just a sentiment shock. The $100,000 visa fee is a significant challenge for the IT sector. This will also impact company valuations. Investors will now reconsider the clarity of IT companies' earnings." They believe this cost increase could impact long-term profits, contract value, and other strategies.
Investors' biggest concern is whether companies will be able to absorb this additional expense, or whether they will have to alter their business models, pass the costs on to clients, or cut profits.
How will IT companies' profits be affected? While the $100,000 fee is surprising, companies need to deeply understand its true impact on profits. Vikram Kasat, head of consulting at PL Capital, said this new rule could reduce the sector's profits by approximately 40 basis points by FY27. This fee will apply to new visa approvals starting March 2026 and will be valid for three years. It can be extended for another three years. This means the cost will be spread over six years. He explained that H-1B reliance has declined from 3.4% of the workforce in 2016 to 0.7% in the first half of 2025. However, new approvals add 0.2% annually. We estimate the total cost to our coverage universe to be around $60 million. This is minor for most companies, but LTIMindtree could see a significant impact of 130 basis points.” For large IT companies like Infosys, TCS, and Wipro, this could be at the management level. They have large scale, global delivery models, and less reliance on H-1B employees. However, investors should consider a slowdown in profit growth and pressure on earnings in the medium term.
What should investors watch for? This change in US policy comes at a time when Indian IT stocks were stabilizing after a decline in demand. Deal wins and order books were showing signs of improvement. However, visa fee growth has posed a new challenge.
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