IT industry's profit pool at a 5-year low. Will a wave of new visa fees drown the sector?
A massive H-1B visa fee hike compounds existing woes for Indian IT, pushing an already shrinking profit pool to new lows and darkening the industry's outlook
Uncertainty continues to dog the Indian IT sector, which is facing one of its toughest phases in years. On top of a slowing growth, US President Donald Trump has signed a proclamation hiking the H-1B visa fee to a staggering $100,000. The Trump administration later clarified that this is not an annual fee and is only applicable to new visas and not existing visa holders.
Still, analysts warn this move would force Indian IT companies to hire locally at higher wages or shift operations out of the US, all of which could weigh on their revenue and profitability.
The new policy is expected to hit the big players the hardest. The top three IT firms by net profits — TCS, Infosys and Wipro — together accounted for nearly 80% of the sector’s profit pool in the June quarter. Given these companies' heavy reliance on H-1B workers, experts believe the sector's overall profit pool is now likely to shrink even further as a result of Trump’s proclamation.
Profit plunge
This latest challenge comes amid a broader downturn in the industry. A Mint analysis of the latest earnings data shows that the IT sector's share in the overall corporate profit pool has slipped to at least a 21-quarter low of 9.6% in the June quarter. It is down nearly 150 basis points from the September quarter of last fiscal year, and far below the 34.2% peak in June 2020, when IT rode the pandemic-driven digital wave.
The decline is stark even among profit-making companies. IT’s share in this narrower pool fell to 17.6% in the June quarter, well under the 20-24% range seen through much of the pandemic years. Net profit margins for IT and information technology-enabled services companies have also compressed from the pandemic highs of 24% to around 17-18% due to sluggish revenue growth and stiff competition.
The downturn highlights how evolving technology budgets are eroding demand for conventional IT services. Demand headwinds from shifting client priorities toward hyperscalers, software as a service and artificial intelligence investments (AI) have weighed on the sector’s growth lately. The rise of global capability centres and slow monetization of AI productivity gains have added further strain, according to experts.
In effect, fresh deal wins are taking longer to translate into revenues, while big-ticket contracts have become scarce for Indian IT, said Pankaj Pandey, head of retail research at ICICI Securities. “Passing on higher costs to clients looks difficult at this juncture," he added.
This financial pressure is now compounded by a new, severe blow from Washington. Trump’s decision to raise the H1-B visa fees by 9,900% has brewed a perfect storm of uncertainty for the IT firms, which is likely to have a cascading effect across the sector, noted experts.
“Companies simply can’t absorb that burden — the move effectively quashes the H-1B model," said Amit Chandra, senior IT analyst at HDFC Securities.
He noted that legacy players such as Infosys, Wipro and TCS, along with midcaps like LTIMindtree and Persistent Systems, are likely to be hit hardest due to their higher reliance on H-1B workers. “HCL Tech and Tech Mahindra are relatively better placed due to higher local hiring," he added.
Nonetheless, Chandra expects IT firms to execute more projects from India, where lower delivery costs come with lower billing rates, hitting revenues. He added that companies may also expand in Canada or Mexico to maintain time-zone alignment, though the cost benefits there are modest. On balance, experts estimate a 4-5% earnings per share hit for the IT pack going forward.
Going ahead, experts warned that the new visa rules darken Indian IT’s outlook for the second half of the year (H2FY26), with deal disruptions and higher transition costs from re-staffing, fresh hiring and new bases on the horizon.
“The new restrictions could realign how the US firms engage the Indian workforce, leading to greater reliance on global capability centres in India," said Parvathy Tharamel, partner at Trilegal.
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