“If new H-1Bs vanish, on-site revenues will decline, but so do on-site costs. This shift could improve operating margins, as offshore work tends to be structurally more profitable. The net effect on EPS could be neutral in the medium term, although top-line growth could be slower,” Motilal said in a note.
Trump’ decision turned out to be a D-Street sentiment spoiler as tech stocks fell as low as 6% intraday. The worst fall was seen in Mphasis, followed by LTIMindtree which also plunged just under 6% intraday. The Nifty IT index declined 3% with 9 counters in the 10-stock index trading in red. Persistent Systems, Coforge, Tech Mahindra, Tata Consultancy Services (TCS), Infosys, Wipro and HCL Technologies were down between 4.3% and 1.9%.
The stock fell on fears of onsite revenues of Indian IT companies taking a hit while the visa fee raising the cost.
Trump’s proclamation on H-1B imposes will come into effect from next year and not impact renewals and is a one-time fee.
Investec sees no near term impact on margins even as it sees no direct impact on it. “Considering the existing stock of H-1B’s aren’t impacted as this fee does not apply to renewals, existing contracts with clients aren’t impacted.Only new contracts that require onsite resources in the future will now bake in additional costs in the price of the contract, it noted. “The only potential impact is the cost of refilling existing H-1B holders who complete 6 years. This is more likely done through local hiring vs filing incremental H-1B petitions. Considering higher potential costs for this, invoking force majeure clauses are likely,” the brokerage noted.
What should investors do?
MOFSL’s bets to buyMOFSL continues to prioritise a bottom-up play in IT viz. HCL Tech and Tech Mahindra in largecaps and Coforge in mid-tier.
“We prefer TECHM, as we see early signs of transformation under new leadership and improving execution in BFSI. Margin expectations are now more reasonable, and niche offerings are resonating well,” this brokerage said.
As for HCL, the counter remains an all-weather portfolio pick.
In mid-caps, Coforge and Hexaware remain MOFS’s top picks. “The previous downcycle showed that mid-tier firms can thrive in cost-focused environments. Coforge’s Sabre deal shows mid-tiers now have both the scale and the solution maturity to win cost-saving deals. Hexaware, meanwhile, is gaining share through consolidation deals in Financial vertical. With pressures in large accounts appear to be tapering and an improving margin trajectory bodes well for the company,” MOFS note said.
Investec on stocks to buy, sell and hold
Investec has a ‘Buy’ view on Infosys (TP: Rs 1,655), KPIT Technologies (TP: Rs 1,535), Mphasis (TP: Rs 2,980), Tata Consultancy Services (TCS | TP: Rs 3,705), Tech Mahindra (TP: Rs 1,730) and Zensar Technologies (TP: Rs 920).
It has a ‘Sell’ view on L&T Technology Services (TP: Rs 4,275), LTIMindtree (TP: Rs 4,960) and Persistent Systems (TP: Rs 5,470)
Wipro (TP: Rs 272) and HCL Technologies (Rs 1,570) are ‘Hold’ recommendations.
Meanwhile, InCred remains less optimistic as it downgrades the IT sector to ‘Neutral’ from ‘Overweight’ in its Feb2, 2025 report. “…macroeconomic uncertainty is less constructive for earnings and decision-making. We believe the current regulations potentially add a new vector to this uncertainty,” InCred said in a note.
Also Read: TCS or Infosys? Which IT company has the highest share of H-1B visa employees
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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