Trump’s Victory: IT Sector Likely To Benefit From Improved Budget Outlook, Visa Woes To Return

The US presidential election coming to a close with Donald Trump assuming his second term in office, could potentially impact the Indian IT sector.

With this, the Indian IT sector can expect IT budgets to improve on reduction in corporate taxes and uncertainty around elections ending. However, woes around visa policies might play a spoilsport. 

Even as the final results are still pending, the election has been called in Trump’s favour after he bagged victory in key swing states of Pennsylvania, Georgia and North Carolina.

“Lower corporate tax in the US can benefit the US economy by loosening IT Budgets & Indian IT subsidiaries in the US. Make In USA also helps Indian IT providers. However, sentiments towards visas might be negative for companies seeking H1B visas for certain projects. Companies where localisation levels are high like Infosys and Wipro should not be impacted with this,” Nandan Chakraborty, Head, Strategy at DAM Capital Advisors said in a note. 

From the perspective of rate cuts, irrespective of the government in the US, Indian IT will be benefited because of likely improvement in discretionary spending. Moreover, with US elections over, uncertainty will end, which can infuse more private capex, higher budget release, in the country, thereby again benefitting Indian IT companies, he added. 

Sumit Pokharna, VP Analyst, Kotak Securities, opines, “With Trump winning, the business environment and sentiment in the US should improve as he has been talking about reducing corporate tax and the uncertainty around elections ending. This would be conducive to improve the overall macros, as a result of which companies will increase their IT spending, which will result in more outsourcing opportunities for India.”

More clarity on macros will also mean discretionary spending will increase. Even if Trump increases focus on localisation of employment, IT companies are well prepared to deal with it, and the increased cost factor will be offset by the positive macros. 

Changes to the H-1B visa policy will be looked at by the sector. The H-1B visa is a non-immigrant visa that allows US employers to temporarily employ foreign workers in specialty occupations. Indian IT companies Infosys, Wipro, TCS, and others have employees work on client locations in the US on this visa. 

With immigration being one of the important issues during the elections, Republican Trump was indicative of his policies being focused on prioritising reducing immigration in general, suggesting limitations on visas for skilled workers and family-based immigration. 

In his first term, Trump, through his executive order E.O.13788 “Buy American and Hire American”, increased restrictions on H-1B visas. Impact on IT services players was amplified due to their higher dependence on these visas at the time.

“Denial rates for H-1B/L-1 visas rose substantially. Initial denial rates for H-1B rose from 4% to 17% from 2015-2019. For L-1 A/B, it rose by 12ppt to 28%. Importantly, the denial rates in the Biden Presidency plummeted to decadal lows for both. Return of Trump could possibly push the denials up again, as he resorts to restrictive policies,” JM Financial said in its recent note. 

However, the ratio of visa dependent or local resources has now likely flipped. This is reflected in a 50-80% drop in H-1B approved visas for Infosys, TCS and Wipro over FY15-24. That insulates players to a large extent from any spike in denial rates, it further said.