U.S. President-Elect Donald Trump’s protectionist rhetoric has created uncertainty over the future course of action his administration may take on H-1B visas. That, in turn, has put a question mark on the long-term viability of Indian information technology companies, according to Edelweiss Securities Ltd.
The worst-case scenario, according to Edelweiss, will be a 35 percent increase in minimum wages to $100,000 per year, and a doubling of H-1B visa fee to $8,000. If that were to happen, the brokerage expects a 6-13 percent hit in the financial year 2017-18 earnings per share of HCL Technologies Ltd., Infosys Ltd., and Tech Mahindra Ltd.
- HCL Technologies: 6 percent
- Infosys: 12 percent
- Tech Mahindra: 13 percent
The companies mentioned are Edelweiss’ top picks in the sector.
Apart from the possible visa fee hike and the likely increase in minimum wages, Edelweiss also expects stringent visa regime to lead to execution challenges.
...execution inconvenience will be significant and may gobble up management bandwidth and trigger halfhearted approach to onsite projects, leading to lower growth.Edelweiss Securities Report
Local Hiring Increasing
The number of Indian nationals getting H-1B visas has gone up even as most Indian IT players “significantly” increased local hiring and the percentage of H-1B employees fell "sharply”. The reason for the dichotomy is the multi-fold increase in Indian workforce of multinational companies like International Business Machines Corp., Capgemini SA, and Accenture Plc, according to Edelweiss.
The 2.5 percent unemployment rate in the technology industry indicates that Indian IT firms resort to H-1B visa holders only in the absence of local talent, Edelweiss adds.
Despite a possible EPS erosion of 6-13 percent in FY18, Edelweiss maintains a ‘buy’ call on Infosys, Tech Mahindra, and HCL Tech. Infosys is expected to outperform the IT sector, while Tech Mahindra and HCL Tech are expected to deliver returns in line with the industry.