Largecap IT stocks namely Tata Consultancy Services Ltd (TCS), Infosys Ltd, Wipro Ltd, HCL Technologies Ltd and Tech Mahindra Ltd were trading sideways in Tuesday's trade, ahead of the US elections. Investors are cautious as the US President has significant executive powers over immigration and the outcome of the US Presidential elections will, therefore, have ramifications over the future of employment-based immigration.
To recall, the Republican nominee Donald Trump -- who is seeking a second term, had through an executive order E.O.13788 “Buy American and Hire American” increased restrictions on H-1B visas in his first term. Denial rates for H-1B/L-1 visas rose substantially during the Trump's tenure and the impact on domestic IT services players was amplified due to their higher dependence on these visas at the time. This time may be different, JM Financial said.
The domestic brokerage noted that two-third of IT Services players’ US resources were on H-1B/L-1 visas in FY17. But the ratio of visa dependent/local resources has now likely flipped. This is reflected in 50-80 per cent drop in H-1B approved visas for Infosys, TCS and Wipro over FY15-24.
The domestic brokerage estimates that 65 per cent of Infosys' US employees were on H-1B/L-1 visas in FY17. This fell below 50 per cent in FY20 and is likely to have trended down. Similarly, Wipro reported 69 per cent of global workforce as localised in FY20.
"That insulates players to a large extent from any spike in denial rates, if Trump were to return to office," it said.
Another impact of Trump coming back to power could be a significant increase in wage obligation for H-1B visas. Trump administration attempted this through Department of Labour’s (DOL) Interim Final Rule (IFR) in October 2020 and Jan 2021, before it was vacated in court.
"Our analysis of select software roles indicates that average wages for H-1B resources today are 25 per cent above the prevailing wages. Claims of H-1B employees displacing US workers due to lower wages are therefore difficult to ascertain," it said.
In the Trump's first term, from January 20, 2017 to January 20, 2021, IT stocks in fact delivered solid gains, with TCS rallying 189 per cent, followed by Infosys (182 per cent), Wipro (148 per cent), HCL Tech (138 per cent) and Tech Mahindra (117 per cent), data compiled from corporate database AceEquity suggests.
Some midcap and smallcap IT stocks such as Mastek Ltd, Coforge Ltd and Tata Exlsi climbed up to 500 per cent during the four-year period.
At present, there are three bills associated with employment-based immigration, which are currently tabled in the US Congress. These bills aim to protect US workforce, while prioritising high skilled workers for employment-based immigration and improving the overall process. These could, at worst, increase compliance requirement for IT Services, JM Financial said while adding that US Presidential election might have limited bearing on the passage of these bills though.
JM Financial said Trump’s expansionary fiscal policy – cutting corporate tax rate to 15 per cent from 21 per cent for domestic production – could be positive for IT services demand, as it eases budgetary pressures. "To sum up, we believe Trump’s Presidency, while headline negative, will have limited impact on India IT Services players. Harris Presidency, on the other hand, will largely be status quo, in our view," it said.