IT’s profit pool is at a 5-year low. Will the new fees drown the sector?

Uncertainty continues to dog the Indian information technology (IT) sector, which is facing one of its toughest phases in years.

- Abhinaba Saha & Niti Kiran

Ontopofaslowing growth, US President Donald Trump has signed a proclamation hiking the H-IB visa fee toa staggering $100,000. The Trump administration later clarified that this is not an annual fee and is only applicable to new visas and not existing visa holders.

Still, analysts warn this move would force Indian IT companies to hire locally at higher wages or shift operations out of the US, all of which could weigh on their revenue and profitability.

The new policy is expected tohit the big players the hardest. The top three IT firms by net profits—Tata Consultancy Services Ltd (TCS), Infosys Ltd and Wipro Ltd—together accounted for nearly 80% of the sector’s profit pool in the June quarter. Given these companies’ heavy reliance on H-1B workers, experts believe the sector's overall profit pool is now likely to shrink even further asa result of Trump's proclamation.

Thislatest challenge comes amid a broader downturn in the industry. A Mintanalysis of the latest earnings data shows that the IT sector's share in the overall corporate profit pool has slipped to at least a 21-quarter low of 9.6% in the June quarter. Itisdown nearly 150 basis points from the September quarter of last fiscal year, and far below the 34.2% peak in June 2020, when IT rode the pandemic-driven digital wave.