Former U.S. President Donald Trump's proposed $100,000 fee on H-1B visas is causing a significant shift in investor sentiment towards Indian stocks, favoring domestically exposed companies over export-oriented firms. This development is particularly impacting India's IT giants, which heavily rely on the H-1B program for their global operations.

Impact on Indian IT Sector

The proposed fee hike is expected to have a substantial effect on major Indian IT companies such as Tata Consultancy Services (TCS) and Infosys. These firms, which are among the largest users of the H-1B visa program, are already grappling with margin pressures due to tight client budgets, disruptions from artificial intelligence, and uncertainties in trade policies.

The market's reaction to these developments is evident in the performance of relevant indices. The Nifty IT index has seen a decline of 19.00% year-to-date, reflecting investor concerns about the sector's near-term prospects.

Shift to Domestic Sectors

In response to these challenges, investors are pivoting towards Indian stocks with stronger domestic exposure. Allspring Global Investments, for instance, is reducing its underweight position on Indian equities by increasing exposure to domestic sectors such as consumer goods and financials.

This shift is supported by favorable macroeconomic data and policy tailwinds. The Indian government's decision to cut goods and services taxes to boost consumption is expected to benefit companies focused on the domestic market.

The market performance reflects this changing landscape:

Valuation Considerations

Despite the recent shifts, Indian equities remain Asia's most expensive major stock market. However, the underperformance of Indian stocks compared to emerging-market peers has created more attractive valuations, potentially opening up new opportunities for investors.

TCS Financial Results Announcement

In related news, Tata Consultancy Services, one of the companies at the center of this shift, has announced its schedule for the second quarter results. According to the company's latest disclosure:

• TCS will announce its Q2 results on October 9, after market hours.
• A press conference is scheduled for 17:30 hrs IST on the same day.
• An earnings conference call will follow at 19:00 hrs IST.

This upcoming financial report may provide further insights into how the proposed H-1B visa fee changes and other market factors are affecting one of India's leading IT services companies.

As the situation continues to evolve, investors and industry observers will be closely watching how Indian IT companies adapt to these challenges and how the broader market rebalancing plays out in the coming months.

US President Donald Trump has announced a significant increase in the one-time cost of H-1B visas to $100,000, initially raising concerns about its impact on Indian IT stocks. However, recent analysis suggests that the effect may be less severe than anticipated.

Reduced Dependence on H-1B Visas

Indian IT vendors have significantly reduced their reliance on H-1B visas over the past decade through localization efforts in the US and increased local hiring. Currently:

• Only about 20% of employees work on-site
• 20-30% of on-site workers hold H-1B visas
• H-1B visa holders represent just 3-5% of the total active workforce for typical Indian IT vendors

Key Points of the Visa Fee Hike

• The new fee of $100,000 applies only to new H-1B petitions
• Existing H-1B visa holders and renewals are not affected by this increase

Impact on Indian IT Companies

Due to the reduced reliance on H-1B visas, Motilal Oswal suggests that potential fee increases would likely have a muted impact on earnings per share. However, analysts anticipate that this move may put some pressure on IT companies to consider:

1. Shifting more jobs to India
2. Increasing charges to their clients

Differential Impact on IT Firms

• Larger firms like Tata Consultancy Services (TCS), Infosys, and Wipro are expected to manage the near-term costs better
• Mid-tier companies with higher dependence on fresh H-1B approvals may face more significant challenges

Current Market Performance

The Indian IT sector has been facing headwinds, as evidenced by the year-to-date performance of major IT stocks:

Market Sentiment and Analyst Opinions

While the IT sector had recently shown signs of recovery, the investment community remains divided on the best strategy moving forward:

• Some analysts advise gradual portfolio rebalancing
• Others recommend caution, citing expensive valuations relative to growth rates

Expert Insights on H-1B Visa Impact

Helios Capital founder Samir Arora provides additional perspective on the H-1B visa executive order:

• Estimates a limited impact of 5% or less on Indian IT companies
• Advises companies to clearly communicate their response strategies
• Suggests announcing plans for increased hiring of US citizens and green card holders
• Criticizes Indian companies for claiming no impact, arguing this approach could provoke stronger future restrictions

Arora emphasizes the importance of addressing the issue openly, even if the impact is limited. He suggests that by downplaying the effects, Indian IT companies may inadvertently signal that they don't require government or public support.

As the Indian IT sector adapts to this new challenge, investors and industry watchers will be closely monitoring how companies navigate the changing regulatory landscape. The market's reaction in the coming days will be crucial in determining the short-term trajectory of Indian IT stocks.