H1B Visa Shock: What It Means for Indian IT

The Indian IT sector has faced its fair share of challenges over the past few years, but the latest blow has come in the form of a sharp policy change in the United States. In a surprise move, the US government announced a steep increase in H1B visa fees—raising them to an eye-watering $100,000. Although clarifications followed—that renewals are excluded and the fee is a one-time payment rather than annual – the announcement has unsettled markets. Indian IT, which remains one of the largest beneficiaries and sponsors of the H1B program, saw its sectoral index slide nearly 6% in two sessions. The sell-off was compounded by an additional proposal to allot visas based on wage levels rather than through the traditional lottery system.

This development comes at a time when Indian IT companies were already grappling with weak client spending, muted deal momentum, and intensifying competition. For investors, the question is no longer whether the sector faces headwinds, but how best to position their portfolios amid these disruptions.

Why the H1B Matters

The H1B visa has been the backbone of Indian IT firms’ ability to service US clients onshore. It has allowed them to deploy Indian engineers to client locations at a relatively lower cost compared to hiring local talent. With more than half of their revenues originating from the US, Indian IT players remain sensitive to any change in immigration policy.

The new fee structure and the wage-tiered allocation system, expected to come into effect by 2026, will make it far more expensive and uncertain to send mid-level employees onsite. Companies will now either have to absorb the higher costs of sending senior professionals or ramp up local hiring in the US at higher wages. Either way, margins are set to come under pressure.

For firms dependent on niche projects that require onshore delivery, this is particularly damaging. Some may resort to nearshoring—shifting work to Canada or Mexico—or reverting to offshore delivery from India. But these alternatives risk delaying projects and could push clients toward rivals such as Global Capability Centres (GCCs), which are steadily gaining traction with their outcome-driven models and cost-efficient setups.

A Sector Already Under Stress

The H1B shock lands at a particularly vulnerable time. Post-pandemic, the digitization boom quickly faded as global monetary tightening and geopolitical uncertainty curbed IT spending. The erratic policy environment under the current US administration has only compounded the uncertainty.

At the same time, the sector is facing structural challenges. The rapid adoption of artificial intelligence has upended traditional IT services. While global technology leaders are showcasing tangible productivity gains, Indian IT companies continue to focus on softer metrics like how much of their workforce is “AI-ready.” Investors and clients alike are demanding more than just readiness—they want demonstrable outcomes, something Indian IT has yet to deliver at scale.

Competition has also shifted gears. GCCs, which operate as captive centres for global corporations, are increasingly being preferred for project execution. With their leaner models, sharper focus on outcomes, and absence of visa-related issues, GCCs are eating into the market share of traditional Indian vendors.

Winners and Losers Within IT

Not all IT companies are equally exposed to the H1B fallout. Large-cap firms such as Infosys, HCL Tech, and Wipro have already reduced their reliance on H1B visas, with only 20–30% of their US workforce dependent on them. These firms also have deeper financial reserves, established subcontracting networks, and a stronger ability to absorb shocks through local hiring.

TCS, however, stands out as an exception. Almost half its US workforce is on H1B visas, making it far more vulnerable to cost escalation. Globally, it is the second-largest sponsor of H1B visas after Amazon—a fact that partly explains the sharp correction in its stock after the policy announcement.

Mid-cap IT firms, which have enjoyed a rerating in recent years thanks to higher growth and agility, have found themselves on the receiving end this time. With valuations already stretched, the sudden H1B disruption triggered steep declines in stocks such as Coforge, which corrected over 10% in just a few days.

The Investment Playbook

So, what should investors do in light of these developments?

First, it is important to acknowledge that IT is no longer the safe-haven sector it once was. With over 10% weight in the Nifty 50, its correction affects broader indices, but the sector is battling cyclical demand weakness as well as structural transformation pressures. Investors cannot afford to treat it as a buy-and-forget story.

Near-term pain looks unavoidable. The index is trading close to its yearly lows, appearing oversold, but valuations of many large-caps have not corrected meaningfully except for TCS. Any bounce from oversold levels should therefore be viewed as an opportunity for portfolio rebalancing rather than a sign of sustained recovery.

Investors should:

• Prefer stronger balance sheets and diversified players. Large-caps like Infosys and HCL Tech, with lower H1B dependence, are relatively better placed.
• Avoid overvalued mid-caps. While agile, they are more exposed to margin pressures and trade at rich multiples.
• Be selective, not sectoral. The days of buying IT as a block trade are over. Investors must pick companies with clear AI strategies, differentiated capabilities, and sustainable earnings visibility.
• Use rallies to exit laggards. A sector-wide rerating is unlikely until a new technology cycle emerges.

The Road Ahead

Indian IT stands at an inflection point. The H1B fee hike has added immediate cost pressures, but the bigger challenge lies in adapting to an evolving technology landscape. Unless Indian firms demonstrate leadership in AI and automation while diversifying geographically, they risk ceding ground to GCCs and global rivals.

For investors, the message is clear: IT may offer short-term trading opportunities on oversold conditions, but strategic exposure should be limited to quality names with strong adaptability. Any recovery in the sector is best used to realign portfolios, exiting mediocre performers and doubling down on firms with real innovation capabilities. Until visibility on a fresh technology upcycle emerges, optimism on the sector as a whole should remain guarded.

Market this week

Source: BSE and NSE

• Indian equities ended their three-week winning run, registering the sharpest weekly decline in nearly six months.
• Sentiment was weighed down by persistent FII outflows, new US tariffs on pharma, higher visa charges, a weaker rupee, and softness in the dollar.
• Domestic flows offered some cushion, with DIIs maintaining steady support even as FIIs continued to trim exposure.
• FIIs extended their selling streak to 13 weeks, dumping equities worth ₹19,570 crore, while DIIs net bought shares worth ₹17,411 crore, marking their 24th consecutive week of inflows.
• Sector-wise, the decline was broad-based: IT stocks slumped 8%, Realty dropped 6%, Pharma slipped 5.2%, Consumer Durables lost 4.6%, and Defence shed 4.4%.

Weekly Leaderboard

Source: BSE

Stocks that made the news this week:

Jewellery stocks slipped on September 26 as concerns around demand intensified, with gold prices scaling fresh record highs. Gold futures on the MCX with October expiry touched ₹1,14,179 per 10 grams, while December contracts hit ₹1,14,198 per 10 grams, marking lifetime highs. The sustained surge in gold and silver prices has raised fears that consumers may curb discretionary jewellery purchases.

Shares of Carysil tumbled up to 10% after US President Donald Trump announced steep tariffs—50% on imported kitchen cabinets and bathroom vanities, and 30% on upholstered furniture. Investors initially feared a hit to the company’s exports, given that over one-fifth of its revenue comes from the US. However, the stock pared losses after Carysil clarified that kitchen sinks, its core product, were excluded from the tariff list.

IT stocks also faced selling pressure, with the Nifty IT index falling for the sixth straight session after a cautious outlook from Accenture. The consulting major guided for slower growth in FY26 due to reduced US federal spending on consultants, which could trim revenues by 1–1.5%. Accenture also announced layoffs as it accelerates its pivot to AI, further denting sentiment across the Indian IT pack.