TCS, Infosys rally over 4%. Will Trump win be really good for IT stocks?

Shares of Indian software exporters like TCS, Infosys, HCL Tech and LTI Mindtree rallied over 4% each on Wednesday as the likelihood of Donald Trump winning the US Presidential election looks high.

A full Trump sweep is seen as positive for equity markets globally and more so in India amid hopes of a favourable corporate tax regime alongside a low regulatory burden.

The market is expecting that Trump win would lead to a stronger dollar, which would be positive for Indian software services exporters.


Trump's expansionary fiscal policy – cutting corporate tax rate to 15% from 21% for domestic production – could also be positive for IT Services demand as it eases budgetary pressures, JM Financial's Abhishek Kumar said.

Also read | US election result: 4 likely scenarios and how it may impact stock market investors

Analysts also point out that the Republican policy of revoking China's MFN status may lead to increased hiring for Global Capability Centers (GCC) in India, which would be positive for the IT midcaps.

“Under both parties, Indian IT services companies are expected to see a negative impact on margins due to higher onshoring. However, a Democratic win may be more detrimental, as increased US corporate taxes could affect discretionary technology spending,” Antique Stock Broking said.

However, in his first term, Trump has increased restrictions on H-1B visas. But since then, Indian IT companies have localised their workforce significantly since Trump 1.0 in 2016 — from about 25-30% locals and visa independent people to 50% in a few years.

"A complete ban on IT outsourcing is very unlikely, given the talent shortage and cost considerations for critical work like IT for US corporates. Overall, we think the workforce for Indian IT is now far less dependent on visa holders than in the past," Nomura said.

Analysts at ICICI Securities, however, believe that the Republican method could set in motion higher tariffs and tax cuts – usher in fiscal deficit pressure and become a vehicle for inflationary tendencies.

"As a domino effect, the USD could weaken – akin to Trump’s previous Presidency, when the Dollar index fell and fiscal deficit rose. In the same vein, Trump’s protectionist policies (tariffs, immigration etc.) could be a curve ball for global trade – already reeling under the Red Sea crisis and container shortages," the brokerage said, warning that export-oriented themes may suffer from protectionism and weaker USD.

Most brokerages believe Trump’s Presidency, while headline negative, will have limited impact on India IT services players.

"Prima facie, the impact on Indian IT looks a tad harsh if Trump comes to power, given his anti-immigration stance. However, Indian IT companies have tried to de-risk the

immigration challenge by hiring more locals in onsite markets, relying on sub-contractors, and opening more near-shore delivery centres so as to rely less on US visas," Phillip Capital said.