All eyes are on who will win the 2024 US elections. Even as Indian and global markets wait for the results of the neck-to-neck fight, Indian information technology firms could also see an impact.
This is because majority of the IT firms' clients are from US. Hence, any political or policy change could impact these companies. From visa policies to corporate taxes, here is a look at five factors that could affect Indian IT firms.
Restrictions On H-1B Visa
Many Indian IT companies need employees to go to client sites and work. This is called onsite work. In order to allow workers from outside the US to work in the country, employers need to obtain a H-1B visa for such employees. The employment of these workers is dependent on the denial/approval rate of such visas.
The denial rates for H-1B visas rose significantly under Donald Trump's first term. Denials for new H-1B petitions for initial employment rose from 6% in FY15 to 24% in FY18, but then dropped to 4% in FY21, according to data by American Immigration Council and US Citizenship and Immigration Services.
Under Biden's presidency, the denial rate was the lowest at 2% in FY21 and FY22.
Indian IT companies are now less vulnerable to denials for H-1B visa. This is because their dependence on H1-B visa has now reduced as they have built local workforce in the US itself. This is reflected in the drop in H1-B approvals for big IT players like Infosys Ltd., Tata Consultancy Services Ltd. and Wipro Ltd.
JM Financial estimates that 65% of Infosys' US employees were on H-1B/L-1 visas in FY17. This fell below 50% in FY20 and is likely to have trended down. Similarly, Wipro reported 69% of global workforce as localised in FY20.
Policy On Higher Wages For H-1B Visa Workers
Trump, in his term, had proposed to increase the minimum wages for H1-B employees significantly above the normal levels. However, this was blocked in court. There could be a possible reintroduction, if Trump were to take become president again. However, data indicates that wages of H-1B visa workers are already above prevailing wages.
American Immigration Council data shows that the wages for H-1B employees was 2.4 times higher than that of US workers in general in 2021. Between 2003 and 2021, the median wage of H-1B workers grew by 52% versus 39% for all US workers during the same time period. In FY19, 78% of all employers who hired H-1B workers offered wages to H-1B visa holders that were higher than what the Department of Labor had determined to be the 'prevailing wage' for a particular kind of job.
Hence, the impact of 'higher than normal wages' for H-1B visa workers on Indian IT companies will likely be limited.
Impact Of Tax Rate Changes
Brokerages say that tax rates under the Republican government will be beneficial for corporates, as they are expected to get cut because of the fiscal expansionary policy and hence beneficial for Indian IT companies.
On the other hand, corporate taxes are expected to rise from 21% to 28% under the Democratic rule.
Emkay and JM Financial note that lower tax rates under the Republican sweep would lead to higher IT budgets and hence this is a positive, but this could only be transient.
Impact Of Fed Rate Cuts
The influence on Fed decisions could increase if Trump comes to power in the US. JM Financial says that Trump’s proposed policies could lead to higher interest rates and slower global growth.
Hence, this could lead to elevated levels of inflation, leading to higher interest rates. This could hurt the client budgets and their spending on IT and ultimately affect the topline of Indian IT companies.
On the other hand, if Harris comes to power, it would be status quo for Fed, implying rate cuts as expected and would not hurt the topline of Indian IT firms.
Foreign Currency Fluctuations
Under the Trump ruling, tariff hikes and fiscal led growth would lead to dollar strengthening and hence higher revenues for Indian IT companies in rupee terms. However, under Harris ruling, dollar is expected to weaken, implying lower revenues for Indian IT in rupee terms.
A Republican sweep would be dollar positive, while a Democratic sweep would lead to immediate USD negative, Emkay said. But USD/FX volatility is expected to continue, it said.
Revenue Impact
Under Trump's first term, Infosys' FY17-20 revenue CAGR stood at 9.9%. Revenue stood at Rs 68,484 crore in fiscal 2017, while it was at Rs 90,791 crore in fiscal 2020.
For TCS, revenue CAGR for the same period was at 10%. While HCLTech's CAGR was 14.6%.
Under the Biden administration, Infosys' FY21-24 revenue CAGR stood at 15.2%, with revenue standing at Rs 1 lakh crore in fiscal 2021 and at Rs 1.53 lakh crore in fiscal 2024.
TCS' revenue CAGR for the same period was at 13.6%, and HCLTech's CAGR was at 13.3%.
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