H-1B fee hike spooks ‘dull’ IT stocks

The Nifty IT index, which is representative of the IT sector, opened on a dull note and declined 2.95% to close at 35,500.15 points, in an apparent response to the H-1B visa fee hike announced by the U.S..

Barring Oracle, all companies in the nine stock index declined, with MPhasis falling 4.7% and HCL declining 1.7% from the previous close. The sector has been receiving multiple blows in the financial year – from lower earnings, disruptions from artificial intelligence and delayed pay hikes, to the rise in fees for new H1-B visas. Analysts say that the staggered policy moves make it difficult to take a call on the state of IT companies and their stocks. They, however, agreed that while these were not the best of times for the IT sector, it was not a “crash” given their importance to the U.S.

“I think these are short-term noise rather than something structural, because Indian IT is the last resort for the U.S.,” said Sushovon Nayak, research analyst at Anand Rathi Institutional Equities.

“A lot of this could even be to appease Mr. Trump’s core voters in the run-up to the mid-term elections in the U.S.,” he said. He further said that IT companies had enough risk mitigation strategies like local hiring and increased nearshoring/offshoring.

Clients of Indian IT firms may also understand the situation and take some hit in the short term, while the firms themselves may start sub-contracting some operations to deal with the uncertainty in the short term, Mr. Nayak added. These strategies reflected the structural resilience of the Indian IT sector, he said.

“While there is scope for optimism, the occurrence of a rally could well be possible if Mr. Trump’s sanction-like action on Indian IT employees are rendered invalid by the American courts,” said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services Ltd. He further said that IT stocks, as in the case of other sector stocks, were overvalued when compared with their financial performance.