US H-1B Visa row: Indian IT majors to face modest revenue hit, InCred says

Companies like Infosys, TCS, and HCL could have a maximum of up to 1.14% revenue impact due to the current H-1B visa changes proposed by the Trump administration in the US, assuming 90% offshoring, according to equity research, trading, and advisory services platform InCredEquities. This means that even if 90% of the employees, who are in the US under the latest 2024 New Employment Approval, return to India, these companies could face a maximum of up to 1.14% of the revenue impact. 

InCred had downgraded the IT sector's rating to 'neutral' from 'overweight' in February and June, highlighting that macro uncertainty is less constructive for earnings and decision-making.

In its revenue impact analysis, InCred states that U.S. visa-related noise adds a new vector to the current uncertainty and delay in decision-making. "Although the initial draft of suggested regulations on H-1B visas implied a material risk to & disruption of the outsourcing business model, the clarifications including 1) US$100k is a one-time fee and not annual, 2) the fee applies to new visas, not renewals, and not to current visa holders, and 3) those who already hold H-1B visas and are currently outside the US will not be charged US$100k to re-enter the country, and that Visa holders can leave and re-enter the country as they normally would, suggests that the regulations are better than feared," the brokerage says in its note."

It stresses that onsite wage inflation could increase the cost of doing business, as the new regulations could restrict the free movement of subject matter experts (SMEs), generally with three-to-seven years of experience and accounting for a significant proportion of new employment approval H-1B visa petitions, could be impacted.

SMEs provide specialised knowledge and are critical to project transition and meeting the deliverables of all stakeholders. "Recent visa regulations could increase the demand for local SMEs and salespersons, leading to material onsite wage inflation. This could be detrimental in the backdrop of the deflationary impact of artificial intelligence (AI), rising competitive intensity, and up-fronting of costs with aggressive deal constructs. Rising cost pressure, lower onsite roles incrementally, and potential offshoring of existing onsite roles could be key FY27F revenue and EBIT margin headwinds."

InCred believes the overall revenue impact assessment at this stage is difficult, given the lack of validated data; it attempts to measure the impact based on a potential loss of revenue. For this, InCred takes the 2024 New Employment Approval into account and assumes a certain percentage of offshoring, and bill rate differential to arrive at the potential loss as a % of annualised 1QFY26 revenue. "We would revisit this analysis, if required, as companies file the actual petition data with stock exchanges. Finally, our analysis does not factor in any potential impact of slower decision-making."