The latest escalation in H-1B visa costs may shave just 1-3 percent off margins for Indian IT firms, but the timing could not be worse. With the sector growth languishing at 2-4 percent, US policy turning overtly adversarial, and generative AI looming as a structural threat, the visa proclamation adds another layer of uncertainty to a sector already under pressure, said market veteran Samir Arora, Founder, Helios Capital Management in an exclusive conversation with Moneycontrol.
“People are asking the wrong question by focusing only on the math,” said Samir Arora, founder of Helios Capital. “The bigger picture is that for months everyone assumed tariffs on services were off the table since the US is a net surplus player. To suddenly see barriers being imposed on services is a macro negative. Growth was already 2-4 percent and not expected to improve near term — this adds one more reason to stay cautious.”
Arora noted that while companies could eventually respond by offshoring or relocating to markets like Canada or Mexico, such shifts take 6-12 months and delay decision-making. “Investors were already wondering whether to wait one or two years to reassess growth and AI impact. Now they have one more reason to pause,” he said.
Even the favourable arithmetic does not soften the blow. “If growth is 30 percent and it slips to 28 percent, that’s different. But when growth is 3 percent and you hoped it might rise to five or six percent, a 1-3 percent margin hit is material,” Arora added.
The policy stance also raises deeper worries. “They can say it applies to all H-1Bs, but if 70 percent go to Indians, it’s clear where the pressure is targetted,” he said. “The tone from US officials has been increasingly aggressive. Even if this rule softens later, the environment of uncertainty for a low-growth sector means there’s little reason to chase these stocks.”
On being countered with the argument that IT services companies’ high return ratios and the potential for buybacks could support valuations in a market that is largely seen as being overvalued, Arora disagreed and pushed back. “High ROEs mean nothing if companies can’t reinvest. Most of these firms pay out all their earnings as dividends — there’s no compounding. At the end of the day, you’re only paying for this year’s earnings, and those are growing 3-5 percent at best,” he said.
Against a domestic backdrop of rate cuts, GST reductions, and income tax relief that have bolstered consumption-focused sectors, Arora said IT looks even less compelling. “Why chase export-oriented businesses facing tariffs and AI uncertainty when local opportunities are stronger?” he asked.
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