H-1B fees, AI is concerned: double problems for Indian IT

Copyright © HT Digital Streams Limit all rights reserved. US President Donald Trump’s H-1B visa money increase could hit India’s IT services sector. Summary The sharp increase in the US H-1B visa fees and the growing impact of AI adds the pressure on India’s IT services sector. While Tier-1 businesses can defend the storm, Tier-2 firms have tighter margins and slower turnover growth amid cautious customer spending. The Nifty IT index fell 3% on Monday after a new COG in the wheel emerged for India’s information technology sector, which has a desperate need for catalysts to revive the growth of revenue. The US $ 100,000 one-time fee on new H-1B visa applications, higher than $ 1000, will make it more expensive for Indian IT services companies to do business in their biggest market. Lately, Indian IT businesses have cut the dependence on H-1B visas and preferred to transfer the US-related business to Canada or Mexico. The impact of the H-1B visa changes on earnings per share (EPS) of Tier-1 Indian IT businesses is expected to be limited, while Tier-2 businesses such as Persistent Systems Ltd and Mphasis Ltd may experience relatively more heat (although they would not affect it). If it assumes that new H-1B visa applications by Indian IT service providers continue at the same rate as at 2024-25, their EBIT margin can be hit by 11-99 basis points, according to the estimate of Nomura Global Markets Research. Their EPS can be compressed by 0.5-0.6%, if the companies accept that the businesses do not make changes to their operating model, Nomura said in a September 21 report. Alternatively, if Indian IT businesses decide to rent more people in the US, it could lead to higher expenses for salaries. Companies can choose to pass on some of these costs to customers. But this can make them more careful, which contributes to further delays in decision making. Another option for IT businesses is to redistribute software development and technical support work to other countries to save costs. But it can have disadvantages. “We believe that companies carefully cannot accelerate the offshoring aggressively, but this can be done gradually, as the purpose of this proclamation is to lower outsourcing and create US jobs,” Ambit Capital said in a September 22 report. A significant offshoring could invite a reaction in terms of service tariffs or tax on the offshoring, he added. Slow recovery The H-1B visa changes come when the IT services industry in India is already struggling with subdued discretionary spending on it due to global macroeconomic challenges. There is another moving part of the story – the increasing acceptance of artificial intelligence. According to HSBC Global Investment Research, a concern among investors or agentic AI would lead to further decrease in the IT services -pie as traditional software becomes out of date. Agentic AI refers to autonomous systems that can set goals independently, make decisions and perform complicated tasks with minimal human intervention. HSBC estimates that AI leads to a gross revenue deflation of 8-10% on Indian IT services businesses. “It is likely to be realized over three-four years as renewal transactions emerge; hence an annual impact (2025/26/27) of as high as 3-4%,” it rang in a September 17 report. In the first quarter of April-June Financial, the successive constant currency revenue for some Tier-1 IT businesses dropped despite the strong victories. With increasing protectionism in the US, uncertainty extends to July-September and the seasonally poor third quarter (October-December). This hope of restoring rapid income in 2025-26. Ambit Capital warned about the slower revenue for the IT sector in India, warning of margin pressure for tiger-1 businesses and lower tier-2 firm increases. In 2025 so far, the Nifty IT index is 18% lower and traded at a 23X-year-old price-to-earnings, a premium up to ten-year average, Bloomberg data. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #H-1B Visas #it Sector #Markets Premium #Mark to Maket Read Next Story