Two ways the H1-B visa freeze could change things for TCS, HCL Tech, Infosys and other Indian IT companies

• US President Donald Trump’s executive order to suspend new H-1B visas may not hamper Indian IT companies in the short run but could spell bad news if extended beyond December 2020.
• According to Japanese brokerage firm Nomura, one key indicator to watch out for if there is also uptake in the rejection of H-1B visa renewals.
• A further increase in rejection rates could lead to Indian IT services companies sourcing talent either through subcontractors or increasing localisation even further.

US President Donald Trump’s executive order to suspend the issuance of new visas till the end of 2020, including the tech industries’ favourite H-1B visa, may not impact Indian IT services companies as heavily as some may think.

However, that could change after the December 2020 deadline. Japanese brokerage firm Nomura believes that any indication of extending the curb beyond December could spell difficulties for Indian IT companies like Tata Consultancy Services (TCS), Infosys, Tech Mahindra, HCL Technologies, Wipro and Cognizant.

Another factor that could make things more difficult is if, in addition to new visas, the renewal rate of visas also takes a hit. “We have already seen a sharp increase in rejection rates for both new visas and renewals over the past five years,” Nomura said in its report.

H1-B visa freeze will have a limited impact — for now
Nomura highlights that new visas only account for less than 5% or less of the overall headcount in the US for Tier-1 IT services companies. So even if H-1B visas aren’t being doled out, it only impacts a very small proportion of the companies’ needs. “We do not see a material impact on India Tier-1 IT from the executive order,” it said.

According to NASSCOM, the restriction on H-1B visas will hamper the US economy and worsen the burden of the coronavirus pandemic. While it’s true that it will hamper the American companies from accessing the talent they need from overseas, Indian companies don’t seem to be too stressed.

“From a near or medium-term perspective, we don’t see much of an impact because of current situation and travel restrictions,” Tech Mahindra’s CFO, Manoj Bhat, told Business Insider. Movement is largely restricted during ongoing coronavirus pandemic, even if one was to obtain an H-1B visa — there would no way to travel to the US with international flights locked down.

The key indicator to watch out for is any indication from the US of extending the curb beyond December 2020.

Indian IT companies were already on the road to localisation
With H-1B denial rates increasing over the past five years, most Indian IT services companies were already focusing on localisation. The top 4 Tier-I companies already have nearly 60% to 70% localisation in the US, which lowers their dependency on the H-1B visa.

“With the current environment I do believe there is more availability of the talent in the US even local as well as resident visa holders,” said Bhat.

Even though there’s a restriction on issuing new H-1B visas, the key indicator to watch out for is how the renewal of H-1B visas will bear an impact. According to Nomura, any further increase in rejection rates could lead to Indian IT services companies sourcing talent either through subcontractors or increasing localisation even further — which is less likely to be an issue increase unemployment rates in the US are currently high. “However, this could lead to an increase in costs, as locals are 20% to 25% more expensive compared to H-1B,” said the brokerage’s report.

Less demand, less spending — ergo lower demand for visas

Gartner has already lowered its forecast for worldwide IT spends by 8% in the current financial year. Nomura expects there to be a 3% to 5% decline in revenue specifically from the US. This means the need for new visas will be further drummed down.

SEE ALSO:
Nearly 80,000 Indians with H-1B visas work for TCS, Infosys and other Indian IT companies — here's a company-wise breakup

Google’s Sundar Pichai, Facebook and Amazon — here’s how American companies reacted to Donald Trump’s H1-B visa freeze

Donald Trump's H-1B visa ban incites a sharp reaction from India's tech lobby