Trump's H-1B shock: Winners, losers, and what it means for your portfolio

This Friday, US President Donald Trump issued the broad strokes of a diktat to raise the fees for H-1B visas from $7,000-10,000 to an eyewatering $100,000. This was clarified later to be a one-time fee payable at the time of the petition, rather than being an annual fee. For a three-year visa, this would amount to $33,333 a year.

Speculation was rife that renewals could also be at risk, particularly for petitioners who leave the US, and that spouses' visas could also face increased scrutiny. The US administration has since addressed some of these concerns, but not before causing considerable panic among businesses, petitioners, and government agencies.

Who are the winners and losers from Trump’s latest diktat? Let us explore.

Not just Indian IT on the firing line

More than 70% of the 400,000 H-1B visas issued by the US in 2024 are held by Indians. Indian IT firms, which derive more than half of their revenues from exports to the US, have been the largest sponsors for Indians’ H-1B visas. So, it goes without saying that the Indian IT services industry will bear the brunt of Trump’s latest proclamation.

That said, thanks to the STEM (Science, Technology, Engineering, and Mathematics) skill gap in the US, US firms also depend on H-1B visas for specialized roles. In fact, Tata Consultancy Services (TCS) was the only Indian company among the top five firms with the largest number of H-1B workers. The top five US firms secured 28,000 H-1B visas in the year ending September 2024, compared to just about 24,000 visa petitions approved for the top five Indian IT firms in the calendar year.

This means that in the near term, US firms will also struggle with project delays and cost run-ups as they scramble to hire, train, and compensate new locally hired employees. In the longer term, artificially imposed controls on talent would deter innovation, which could hold the US back in its race for innovation against China.

Such has been the panic among US firms that J.P. Morgan, Microsoft, and Amazon have promptly issued advisories asking their employees on H-1B visas to stay in the US. If visiting other countries for work or vacation, it is suggested to return before the new visa rules take effect on 21 September.

Damned if they do, damned if they don’t

The next few months will be fraught with business uncertainty for Indian IT players. Companies have four options: pay the exorbitant visa fees for onshore Indian employees, shift work offshore (back to India) or nearshore (e.g., Canada), or replace onshore Indian employees with local hires in the US.

Considering that the new visa fees are about a fifth of the average annual salary of onshore employees, the first option would severely impact margins. The impact would be starker if employers were to cover entry-level employees. If clients do not insist on co-location, work can be shifted offshore or nearshore. But offshoring would pit IT firms in direct competition with cost-competitive global capability centres (GCCs), and clients may prefer onshoring over nearshoring. This could lead to a slowdown in deal wins for companies that opt for offshoring or nearshoring US-based projects.

Some clients may insist on co-location for projects requiring niche and specialized services. This would rule out offshoring and nearshoring, forcing firms to hire US-based employees. However, estimates place their cost-to-company at $20,000-30,000 more than similarly experienced onshore Indian employees. Their productivity is also purported to be lower due to differences in working culture vis-à-vis India.

Considering the politically charged nature of the matter, the extent to which clients offer to share the increase in costs will have to be seen. All in all, whichever option an Indian IT company chooses, it will either face slower deal wins, margin pressures, or both.

Can this be the great equalizer between large- and mid-cap IT firms?

Over the last five years, mid-cap IT firms have proved to be more agile in an evolving technological and competitive landscape. As GCCs intensify competition and AI disrupts long-standing processes, mid-cap firms have been able to adapt faster, thanks to their project-centred teams and outcome-oriented pricing. This has reflected in their superior top-line growth as well as outperformance on the bourses, even as large-caps have remained focused on protecting their margins.

But the higher visa fee is likely to weigh heavier on mid-caps, thus promising to be the great equalizer. Here’s why.

Tier-1 IT players depend on H-1B visas for only about 20-50% of their onshore employees in the US, with the approved visa petitions for initial employment having declined by 56% between 2014-15 and 2022-23. Deeper pockets have allowed larger firms to pivot towards local hiring. More than half of Infosys and TCS’s local staff in the US are US-hires.

Thanks to the wider margins commanded by larger firms, subcontracting has worked as a viable alternative for them. They have also found more success with setting up delivery centres in the US and offshore delivery. Managements attribute this to a pandemic-led structural shift towards automation and upskilling. Mid-cap firms, on the other hand, have had to rely more deeply on onshore delivery.

Of course, this can also be attributed to how tier-1 IT majors tend to focus on traditional IT services, while mid-cap majors typically provide engineering, research, and development (ER&D) services. Clients availing niche and specialized ER&D services are more likely to insist on co-location. As the higher visa fees kick in, co-location will become even more expensive for mid-cap players, eroding their already thin margins.

That said, larger firms could see deal slowdowns and, consequently, slow top-line growth if they reduce onshoring further. Moreover, as US firms lean more on GCCs for their IT needs, GCCs can end up stealing more market share from both large- and mid-cap IT firms.

Bottom line

There are hardly any winners from the hiked visa fees. According to immigration adviser Fragomen, Trump’s visa proclamation could end up getting challenged in a court of law. This will not be the first time either. Trump’s other diktats have also faced legal hurdles—the legitimacy of his tariffs has been questioned, and his attempts to remove a Fed governor and end birthright citizenship have been blocked.

While this stokes hopes that the judiciary could block the visa proclamation, it adds a layer of uncertainty to the hiring and business strategies of impacted firms. Uncertainty is also brought about by how the US has reserved the right to exempt individuals, companies, and industries from the high visa fees if they are found “in the national interest".

NASSCOM is assessing the impact of the proclamation. India has resumed talks to revive the trade deal that had halted over recent tariff escalation. So, the visa problem could also find a reprieve through international diplomacy. Over the longer term, however, the problem shines the spotlight on the urgent need for India’s IT to upskill, enhance innovation focus, and diversify.

For more such analysis, read Profit Pulse.

Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser. X: @ananyaroycfa

Disclosure: The author holds shares of some of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.