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In a surprising turn of events, US President Donald Trump announced a $100,000 fee on H1-B visa applicants, but this move hardly shook the Indian markets for more than a few moments. Initially opening lower in response, the Indian markets made a swift recovery, erasing nearly all losses.
The Information Technology (IT) sector, expected to bear the brunt of this fee increase, did see a dip of around 2.8 percent by 1 pm. However, this index remained significantly higher than the lows reached during the initial market reaction. As the day progressed, the announcement lost its potency, especially after clarifications revealed that the fee hike would apply only to new applicants, rather than impacting current H1-B visa holders already residing in the US.
Despite this clarification, the looming threat of further actions from Trump against India left the IT sector and the broader market feeling uneasy. Do read our Research Head Madhuchanda Dey’s analysis of the impact.
Industry experts in both India and the US voiced their criticism regarding the drastic hike in fees. Analysts predict that the real effects of this increase will emerge in the fourth quarter of the current fiscal year and the first quarter of the next, as that period typically sees a flurry of H1-B lotteries and petitions. Yet, they emphasise that any impact would likely be minimal, pointing out that Indian IT companies have significantly reduced their dependence on H1-B visas over the past decade.
A report by Motilal Oswal highlights this trend, indicating that localisation efforts in the US and an increase in local hiring have led to only around 20 percent of employees being based on-site, with just 20-30 percent of those on H1-B visas. This means that H1-B holders now represent merely 3-5 percent of the active workforce for a typical IT vendor.
While Indian companies may feel some effects, the major burden will likely fall on US tech giants, which consume a significant portion of the H1-B lottery. Companies like Google, Amazon, Microsoft, and Meta account for a larger share of new applications compared to their Indian counterparts. Thankfully, for Indian IT vendors, their existing delivery models incorporate localisation and subcontracting, leaving them in a relatively strong position to adapt.
According to data from the USCIS for the fiscal year 2025, Amazon leads with 10,044 H-1B approvals, followed by Tata Consultancy Services (TCS) with 5,505, Microsoft with 5,189, and Meta with 5,123.
Mohandas Pai, the former CFO of Infosys, criticised Trump's move saying the President had "shot himself in the foot" with this announcement. Pai noted that the salaries for top H-1B employers already exceed $100,000, making any claims of cheap labour misleading.
In response to the hike, many Indian IT companies may choose to forgo new H-1B applications entirely, opting instead to expand their offshore operations or increase local hiring. Motilal Oswal's report suggests that this shift could lead to decreased on-site revenues, but it may also reduce on-site costs and ultimately enhance operating margins, as offshore work is generally more profitable. While earnings per share (EPS) impacts may be neutral in the medium term, companies might experience slower top-line growth.
Most industry observers believe that this fee hike is likely to face legal challenges in US courts and may not remain in its current form, much like many other tariff increases introduced by Trump.
However, as our columnist Prosenjit Datta points out, “The bigger worry for everyone is the HIRE Act – Halting International Relocation of Employment Act – which is being shaped currently and might become a law in the near or medium term. This would severely discourage companies from outsourcing work. So, even the strategies that can be applied to reduce the impact of the H1B visa bill increase will not work.”
The H-1B visa fiasco would add another reason for foreign investors distancing themselves from the Indian markets. The bright spot amid this uncertainty is the growing involvement of domestic investors.
In the fiscal year 2025, mutual funds amassed an impressive Rs 6.1 lakh crore in equity—an all-time high. This surge brought total equity demand, including contributions from institutional and retail investors, to Rs 8.8 lakh crore. Even with foreign portfolio investors pulling out, net inflows stood at Rs 7.5 lakh crore. The number of unique investors in the securities market soared from 4.2 crore in 2020 to 13.3 crore by August 2025, driven primarily by mutual funds.
It is this unprecedented influx from Indian investors that has helped cushion the market from the impacts of Trump's tariff and fee hikes. The duration for which Indian investors can absorb the challenges posed by Trump remains to be seen. Ultimately, it all depends on how Corporate India manages to navigate the obstacles created by his administration. The growth in earnings will determine the market's direction.
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Moneycontrol Pro
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