New Delhi [India], September 22 : The new H-1B visa fee regulation in the United States, though prima facie looks negative, but it will have minimal near-term implications for Indian IT companies, while medium-term challenges could emerge in the form of higher costs and the need for greater localisation, noted a research report by Morgan Stanley.
"We see limited near term implications on business given it is only applicable on a prospective basis hence unlikely impacting near-term travel plans or ramps of existing projects due to staffing issues" noted the report
US President Donald Trump has signed a proclamation requiring a payment of USD 100,000 to supplement H-1B petitions for new applications, effective from September 21 for a 12-month period, unless extended. The new rule however, applies prospectively, meaning it will not impact existing visa holders or petitions already approved.
The research highlighted that Indian IT firms, which account for nearly 70 per cent of all H-1B visas issued annually, may face a higher cost structure over the next 3-6 years as renewals come up. The fee, applicable per petition typically valid for three years, extendable by another three, could create incremental expenses.
Morgan Stanley's estimates suggest that the gross impact on earnings before interest and taxes (EBIT) margins could range between 10 to 120 basis points, translating into a 0.5 per cent to 8.5 per cent drag on EBIT. However, with mitigants like offshoring and pricing renegotiations, the net impact could be contained to about 50 basis points, or 3-4 per cent of EBIT.
The report further noted that companies engaged in engineering research and development (ER&D) would be least impacted, while mid-cap IT firms like LTIMindtree and MPhasis could face the maximum pressure. Large-cap companies like Tata Consultancy Services, Infosys, Wipro, and HCL Technologies are better placed due to diversified operations and stronger offshore capabilities.
Over the last decade, Indian IT companies have gradually reduced visa dependence, with increasing localisation in the US and nearshoring to Canada and Latin America. The trend, accelerated during the COVID-19 pandemic, has already led to a higher offshore mix.
"We see companies may work on plans to de-risk their business model and reduce their exposure to visa dependent population in US and other geographies." noted the report
The report added that higher costs could eventually be passed on to clients through contract renegotiations, since the new fee is an industry-wide issue and not limited to Indian IT players. Every additional role shifted offshore would also help neutralise the cost burden.
The report concluded that while the new H-1B fee regime adds uncertainty, it could accelerate long-term shifts in the delivery model, benefiting companies that are agile in adopting offshore strategies.
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