IT stocks were battered down on fears that the US may have stricter norms for H1B visa. The IT index has fallen over 1 percent with TCS, Infosys and Wipro losing around 1-2 percent Monday.
The H-1B is a non-immigrant visa in the United States which allows US employers to temporarily employ foreign workers in specialty occupations. The 1990 H-1B visa programme allows US employers to import up to 65,000 foreign workers with "highly specialised knowledge". According to reports Trump may reduce the cap on H-1B visas or raise the fees or auction them.
However, analysts say the threat may not spell much trouble for the sector as tech employment in the US is extremely low at 2-3 percent. Last year, top 6 Indian IT had 16 percent share in new H-1B visas.
With a cautious stance on the sector, Citi says pricing pressure may continue resulting in sluggish operating profit growth. "We expect the immigration issue to be a key investor focus going forward - any change here could impact the flexibility of the offshore model or increase the costs. Also, there is a risk of certain clients pushing out decision making till there is clarity on this issue," it says.
Speaking to CNBC-TV18 Pramod Gubbi, Head of Equities at Ambit Capital, said that Donald Trump’s recent rhetoric on H1B visas are less of an issue for the IT sector. IT sector will continue to wrestle with challenges regardless of the US president elect's negative bias towards immigrant workers, he says.
Nasscom President R Chandrasekhar also agrees that the notion that Indian IT workers replace American workers is mythical.
He says all businesses across the world including US are under tremendous pressure to adopt technology. "US is deficient in skill sets and needs to adopt technology to stay efficient. Trump will look at all ramifications from a business perspective," believes Chandrasekhar.
Sudin Apte, CEO & Research Director at Offshore Insights concurs with the thought and says that there is no need to press the panic button post Trump's comments.
"I don't think we need to worry at this stage. There is no reason to believe Trump-related immigration risk as a major headwind" he says adding that top Indian companies have started increasing local hiring in US.
Bank of America Merrill Lynch says three of six recent bills around H1-B propose wage hikes. The average wage on H1-B for India IT is at USD 70000 compared to median US IT salary of USD 91000. The brokerage firm estimates every 10 percent increase in H1-B wages creates earnings per share (EPS) risk of 4-11 percent. Also it says with Senate and House controlled by Representatives, the risk of implementation of visa restrictions is higher.
Technology companies, however, have been reeling under pressure but recent weakness in rupee had brought some buying into the sector. After September quarter, IT companies cut guidance for FY17 on growth slowdown especially due to softness in Banking, Financial services and Insurance (BFSI) sector. Post Q2 results, Infosys reduced FY17 revenue guidance for the second consecutive quarter and had already warned about risks to guidance from RBS contract cancelation and tepid business in banking, manufacturing & retail segments. The country's second largest IT company slashed its revenue guidance for FY17 to 8-9 percent from 10.5-12 percent earlier in constant currency terms after considering performance of H2FY17 and near-term uncertain business outlook.
Earlier, Credit Suisse had said that Trump's anti-immigration rhetoric and recent comments could pose uncertainty and worst-case outcome could create 200 basis points margin pressure.
Also, the sector is at a risk of further pressure post Q3 results as generally this quarter is weak due to less number of working days due to US holidays.
Follow @ NasrinzStory
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
