Says Anuj Sethi, Senior Director, Crisil Ratings, “New H1-B visa issuances contribute less than 5% of the US onshore workforce of the top 5 listed Indian IT firms, which account for 60% of the industry revenue. On the other hand, the share of local hires in their US onshore employee mix has steadily increased from 30-35% in fiscal 2017 to about 55-60% in fiscal 2020. And with firms aiming to increase the share of local talent, especially with digital skills, the transition impact is expected to be marginal for them.”

The US has proposed a transition of the existing H1-B visa issuance to a merit-based programme (criteria for capping new visas at 85,000 to be decided on quantum of salary rather than the lottery system currently) or a potential increase in minimum salary floor.

Assuming employee requirements through new visa approvals (6,137 units in fiscal 2019) are completely met via local hiring and considering a 25% premium for local hiring over the H1-B route, the additional cost burden on IT firms may not exceed Rs 1,200 crore. Thus the incremental cost impact on the ~$97 billion IT service industry remains marginal at about 25-30 bps, though a few mid-sized IT firms with higher reliance on H1-B visas and lower onsite presence could face some challenges.

Says Sameer Charania, Director, Crisil Ratings, “Additionally, with higher share of employees working from home and with continued restrictions on mobility due to the pandemic, the onshore requirements of IT firms are likely to be lower. Further, IT firms are expected to re-negotiate the onsite requirements with clients until the industry witnesses a recovery in discretionary IT spending.”

Having said that, any larger adverse change in US visa regulations especially on the existing visa H1-B visa renewals or continued suspension of new H1-B visa issuances over the long run will remain a monitorable, given the industry derives ~60% of revenues from North America.

Crisil Ratings does not expect any material impact on the credit quality of most IT firms as their financial risk profile is healthy, supported by low debt levels and large liquid surplus. The sample set of 15 IT firms has an average gearing of ~0.12 time and cash balances adequate to cover 4-5 months of employee costs.

¹ Refer to our press release dated April 24, 2020 titled, IT firms stare at revenue, margin blows of the decade