Trump roadmap leaves Indian IT edgy; analysts see up to 10% hit on bottomlines

NEW DELHI: As US President-elect first to-do list showed signs that some of the protectionist rhetoric of his election campaign might turn into reality, analysts keeping a close watch on India’s IT sector said any such move can eat into 5-10 per cent profits of major domestic IT firms.

Republican Donald Trump, who pulled off a shock win over Democrat Hillary Clinton earlier this month, has already outlined his to-do list for Day 1 after he takes office on January 20.

Among other steps, the agenda includes a probe into possible abuses of the work visa program, besides withdrawal from the trans-Pacific trade treat.


“Although a pick-up in banking and manufacturing sectors in the US, if the economy takes off, would aid demand growth for IT firms, the evolution of the H1B visa policy and possible checks by the Trump administration on migration of skilled workers will be watched closely,” said Ajay Bodke, CEO and Chief Portfolio Manager for PMS at Prabhudas Lilladher.

Foreign brokerage HSBC said in case the immigration bill of 2013 is tweaked, there could be a 5-10 per cent hit on the earnings of IT firms due to higher visa fees, higher local hiring and US salaries.

“Until Trump clarifies his policies, there may be uncertainty over the outlook for Indian IT sector. In addition to the impact on visa/immigration, there could be a likely impact from Trump’s policies on Obamacare and banking regulations. He has advocated lenient regulations for banks during his campaign and also talked of replacing/cancelling Obamacare. Both of these have been growth drivers for Indian IT and may turn potential growth headwinds,” HSBC said.

N Chandrasekaran, MD & CEO at TCS, on Monday told ETNow that a possible visa fee hike will impact everybody in the IT industry. Already IT firms are seeing delays in order flows in the banking and finance space, which accounts for a major portion of revenues of large IT firms.

Now, there are concerns that digital and automation may cut one-third of the contracts of IT firms in 2017 and 2018, when $200 billion worth of IT deals will come up for renewal. Disruptive technologies are also expected to hurt half the incumbent IT providers, who may lose a part of the work.

Over 5,500 deals are expiring across geographies and verticals over the next two years, ET reported. These renewals would affect the course of the industry over the next three to five years, it said.

That said, valuation-wise the IT sector is one of the cheapest, said HSBC. “The industry is witnessing slower growth due to structural issues such as a high base effect and growing competition. The recent slowdown is the result of some cyclical macro-impact, which we think can reverse in the coming quarters. The downside to revenue estimates seems limited now. We await further macro pick-up/demand acceleration to get more constructive on the sector,” HSBC said.