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00:00Thanks so much for your time today. First up, give us your sense on where do you think the IT stocks or the IT sector could be traded today?
00:07Because we have a lot of mixed reactions coming in on this news flow that we've seen over the weekend on the front of the H-1B visa, the fee hike coming in.
00:17Sure. Good morning. Thanks for having us on the show. Before I proceed with the question, I wanted to clarify a couple of things.
00:25So, the H-1B visa fee hike is a one-time fee that would be charged at the time of new petition.
00:32So, if somebody already has an H-1B visa, they don't need to pay this fee again.
00:36Also, the renewable extensions and amendments on the reissuance of the H-1B visa is not affected.
00:43So, the bulk of the Indian IT employees on H-1B visa is not affected.
00:48Now, coming on to the question, if we see that the H-1B filings by the top Indian companies have already fallen by around 45% in the last five years.
00:58So, as because the firms are increasingly relying on local hires.
01:03And what we see is that the strategy adjustments that can be undertaken by the IT companies is that they will focus more on local hiring.
01:10The IT companies have already accelerated the hiring in U.S. based local employees.
01:16And also, they have more reliance on the offshore delivery model.
01:27Exactly that, Kunal, because, you know, we were just talking about this as well, whether or not this is going to push offshoring here in India or not.
01:36But what is your own sense about how much of a financial hit would this actually equate to for the large IT services providers?
01:47See, in the short term, there can be cost increases, margin pressure, as well as project negotiations, which will possibly impact the profitability on the on-site projects.
01:59And also, we believe that the impact on the margins would be around 50 to 100 basis points in the short term.
02:08The impact will be not that larger because the IT companies have already started local hiring and also shifted their focus on offshore.
02:16And also, what we believe is that as in times of COVID, the companies have already shifted the cost pressure to the clients.
02:24And this can be done at this time as well.
02:27And subcontracting can also be one of the levers for the companies to have the cost under pressure.
02:35So, I believe all of these factors combined might not have that much impact as assumed in the past couple of days.
02:43So, we believe the margins would be taking a hit and short term around 50 to 100 basis points.
02:49And EPS cut can be around 2 to 4 percent.
02:54So, now, last, on this calendar year, we saw top 10 IT companies getting nearly 15,000 visas.
03:05Do you, and if the same trend continues, the cost escalation is humongous for them, you know, from $1,500 going all the way up to $100,000.
03:15And that's over a billion dollars of expenses that comes into the entire play here.
03:23Do you think that, you know, as you said, offshoring and onshoring, a new shoring is something which many of the IT companies may do.
03:32But at the same time, do you see foreign clients also, you know, getting aggressive in setting up GCCs in India?
03:38Obviously, with this move, we can see that there can be a rise in demand for GCCs because the companies can focus on establishing GCCs due to low cost of employees.
03:54But what we also see is that the companies have started moving ahead in terms of delivery model.
04:05And we believe that this will not have that impact in the medium term because the innovation in delivery models and investments are already made in near-shore hubs.
04:16So, while you mentioned about the fact, the kind of impact on margins that may come in, within the IT pack, which are the companies that are more, you know, susceptible to this more margin impact and companies which are, you know, which may have a lesser impact or may be able to mitigate this risk?
04:41Sure.
04:42So, more or less, the bigger names like TCS Infosys, due to their employee pyramid, can be better claimed to handle the situation while the mid and small tier companies might face some pressures because they have to deliver some onsite work and their commitments which are already there.
05:03So, that can impact the small and mid-cap companies.
05:06However, large cap players are already well-paced due to their employee pyramids.
05:12And now, also coming on to the valuations front, we see that all of those, all of these companies are trading at a reasonable valuation as we compared to a five-year mean.
05:23They all are trading below a five-year mean.
05:26I'm talking about the top IT companies.
05:28So, we believe there is some valuation comfort as well over here.
05:31So, it is not that bad as expected.
05:37Right, okay, Kunal, thanks for your thoughts.
05:48Good to speak with you and get in that insight on what really does this H-1B visa fee would imply for IT companies.
05:57And like, Sajid, we were chatting over the weekend as well, you know, a lot of things...
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