Shares of Indian IT companies experienced a sharp decline on September 22. Persistent Systems, Tech Mahindra, LTI Mindtree, Mphasis, and Coforge fell by 3% to 6%, while TCS, Infosys, and HCLTech saw a drop of over 2%. This was attributed to changes in H-1B visa rules and sluggish growth in the sector.
IT Stocks: Indian IT stocks witnessed a significant fall on September 22. Shares of midcap companies like Persistent Systems, Tech Mahindra, LTI Mindtree, and Mphasis plunged by 3% to 6%, while large-cap shares such as TCS, Infosys, and HCLTech dropped by over 2%. This downturn is due to recent changes in US H-1B visa regulations, slow sector growth, and global economic uncertainties. According to brokerage reports, this could also present a selective buying opportunity for investors.
Impact of H-1B Visa Rule Changes
Following recent changes to US H-1B visa regulations, pressure was observed on IT stocks. The White House announced that companies would now have to pay a fee of $100,000, or approximately ₹88 lakh, for new H-1B visa applications. However, this rule will only apply to new applications and will not affect visas filed before September 21 or renewal visas.
Several IT companies clarified that this new rule would have a limited impact on their business. Persistent Systems, Mphasis, and Coforge stated in their declarations that these changes would not significantly affect their operations and profits.
Pressure on Nifty IT Index
The Nifty IT Index was at its record high in December 2024 but has since fallen by approximately 22%. Leading stocks like Infosys and HCLTech have dropped by 20% to 30% during this period. The increase in H-1B visa fees has raised concerns for IT companies, although its impact is currently considered limited.
Buying Opportunity?
Manik Taneja of Axis Capital believes that the decline in IT stocks could offer an opportunity to increase investment in certain select companies. He has included Wipro, Infosys, Sagility, and Hexaware Technologies among his preferred companies.
Taneja stated that the new visa rules could impact Persistent Systems' operating profit by approximately 7% to 8%, while for Tech Mahindra, this effect would be limited to 4%. He added that a sharp decline in shares could provide investors with an opportunity to invest in the right companies.
Nomura echoed Taneja's view, suggesting that any sharp downturn in the IT sector could be utilized as an opportunity to increase investments. The brokerage has identified Infosys and Cognizant as preferred large-cap stocks. In the mid-cap segment, Coforge and Firstsource have been highlighted.
Current Situation
Currently, all shares in the Nifty IT Index are trading in the red. Tech Mahindra's shares saw the steepest decline. Mid-cap companies such as Persistent Systems, Coforge, LTIMindtree, and Mphasis experienced a similar fall. Meanwhile, large-cap companies like TCS and Infosys are gradually attempting to recover from their initial declines.
The impact of H-1B visa rules is considered limited, but sluggish growth in the IT sector and global economic uncertainties are increasing investor concerns. Decisions related to technology and foreign investment in US markets are also determining the direction of IT stocks.
