'I expect IT stocks to trade lower for some time. They are unlikely to make money for investors.'
Stocks of information technology companies are likely to see a knee-jerk reaction on Monday after US President Donald Trump imposed a higher $100,000 fee for new H-1B visas as a one-time payment.
"IT stocks are likely to see a knee-jerk reaction on Monday with individual stocks slipping between 3 and 5 per cent depending on the dependence on the H-1B visa," said G Chokkalingam, founder and head of research at Equinomics Research.
"I expect IT stocks to trade lower for some time. They are unlikely to make money for investors. The tide can turn in case there is a rethink on the H-1B visas and the trade negotiations between India and the US reach a viable solution," said Chokkalingam added.
Thus far in calendar year 2025 (CY25), most IT stocks have underperformed.
The Nifty IT index has slipped around 16 per cent as compared to a rise of around 7.1 per cent in the Nifty 50 during this period, ACE Equity data shows.
Oracle Financial Services Software, HCL Technologies, TCS and Infosys have been the biggest losers in CY25 at the bourses, slipping up to 29.4 per cent, data shows.
Only Mphasis, with a rise of 5.1 per cent in CY25, has bucked the trend.
Clarification from the US authorities that H-1B petitions filed before the effective proclamation date of September 21 will not be affected, and those who are currently outside the US but hold the H-1B visa also do not need to pay the fee for re-entering the country comes as a relief for companies, according to Ambareesh Baliga, an independent market analyst.
This, he believes, will give them time to rethink their strategy on how and where to place their workforce.
"IT stocks will slip, but I don't expect the fall to be too steep. Clarification from the US comes as a silver lining, which gives companies time to work on alternatives," Baliga said.
"For instance, they can base employees in Canada or Mexico as well. Buy for the long-term if these stocks see a sharp fall of around 20 per cent in the next few weeks; else avoid if the fall is around 3 – 5 per cent," Baliga added.
Another silver lining, analysts said, is the falling dependence on the H-1B visa in the last few years.
Over the last decade, Indian IT vendors, wrote Abhishek Pathak, Keval Bhagat and Tushar Dhonde of Motilal Oswal in a recent note, have reduced their reliance on the H-1B visa.
With localisation drives in the US and higher local hiring, only around 20 per cent of employees are currently based on-site, they said.
Of this, 20 to 30 per cent are on H-1B visas, they wrote, implying that H-1B holders represent just 3 to 5 per cent of the active workforce for a typical vendor.
Meanwhile, applications for H-1B visas, too, have witnessed a decline from the highs of 2017 (at 42,671 applications) to 20,870 applications in 2024, the Motilal Oswal note suggests.
Chokkalingam still believes there is room for trade negotiation between India and the US, which will help resolve this matter amicably and can trigger a rally in IT stocks.
Till then, he suggests investors avoid IT stocks as they will remain underperformers at the bourses.
Feature Presentation: Ashish Narsale/Rediff
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