IT stocks retreat as US moves away from H-1B lottery model
Shares of Indian information technology companies slipped on December 24 after the United States announced a major overhaul of its H-1B visa allocation system, replacing the long-standing lottery mechanism with a skill- and wage-weighted selection framework. The policy shift, unveiled by the Donald Trump administration, triggered cautious sentiment across IT counters, even as brokerages said the financial impact is likely to be gradual and manageable.
The Nifty IT index was trading about 0.3 percent lower in early trade, snapping part of the momentum built over the previous sessions. Stocks such as Coforge, Tech Mahindra and Wipro led the decline, falling between 0.7 and 1 percent, while Persistent Systems and Infosys were also down around 0.5 percent each.
What the new H-1B framework changes for employers
Under the revised framework announced by the US Department of Homeland Security, H-1B visas will no longer be allocated purely through random selection. Instead, applications will be weighted to favour higher-paid roles and positions requiring advanced skills, fundamentally altering how companies compete for limited visas.
According to the official release, the rule is designed to ensure that visas are awarded to the “highest-value” foreign professionals. The administration said the change aligns with earlier measures, including a presidential proclamation requiring employers to pay an additional $100,000 per visa as a condition of eligibility.
“The new system will implement a weighted selection process that will increase the probability that H-1B visas are allocated to higher-skilled and higher-paid foreign workers,” the Department of Homeland Security said in its statement.
The revised process will come into effect on February 27, 2026, and will apply to the upcoming H-1B cap registration season.
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Immediate market reaction reflects caution, not panic
The muted decline in IT stocks suggests investors are weighing the announcement carefully rather than reacting sharply. This marked the second straight session of losses for the sector after a four-day rally, indicating some profit-taking amid policy uncertainty rather than a broad reassessment of fundamentals.
Market participants noted that the H-1B issue has resurfaced periodically over the past decade, and Indian IT firms have gradually adapted their operating models to reduce dependence on on-site staffing.
Key reasons behind the limited market reaction include:
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The rule applies only to new H-1B applications, not renewals
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Existing visa holders and current workforce remain unaffected
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Indian IT firms have expanded offshore delivery and local hiring
Why H-1B matters to Indian IT companies
The H-1B visa remains a critical pathway for Indian IT services firms to deploy skilled professionals in the US, their largest revenue market. Historically, companies such as Tata Consultancy Services, Infosys, Wipro and Tech Mahindra have been among the biggest beneficiaries of the programme.
In recent years, Amazon emerged as the single largest recipient of H-1B approvals, followed by TCS, Microsoft, Apple and Google. California continues to host the highest concentration of H-1B workers.
However, the programme has long been controversial. Supporters argue it fuels innovation, fills critical skill gaps in technology, healthcare and education, and boosts economic growth. Critics contend that visas are often used for junior roles and can suppress wages if jobs are classified at lower skill levels.
Brokerages see manageable earnings impact
Brokerage firms were quick to downplay fears of a sharp earnings hit for Indian IT companies, pointing to structural adjustments already made by the sector.
CLSA said the impact would be limited, as the higher cost applies only to new visa applications and not to renewals or the existing H-1B workforce. “In the worst-case scenario, we estimate up to a 6 percent hit to FY27 earnings if the entire burden of fresh applications is borne by companies,” the global brokerage noted.
Motilal Oswal Financial Services highlighted that the first material impact would likely be visible only from FY27, since H-1B lotteries and filings typically take place between the fourth and first quarters of the fiscal year. The brokerage added that Indian IT firms have already reduced reliance on H-1B visas over the past decade, and the new rule could face legal challenges in US courts.
Nomura estimated a more modest impact, projecting a 10 to 100 basis point pressure on margins in a worst-case scenario for companies under its coverage.
Strategic shifts likely to accelerate
Analysts believe the policy change could further accelerate trends already underway in the IT services industry. These include greater automation, deeper offshoring of work to India, and faster expansion of Global Capability Centres (GCCs).
To offset higher visa costs, companies are expected to:
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Increase offshore delivery and remote execution
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Invest more aggressively in automation and AI tools
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Expand GCC operations for global clients in India
“Clients and IT service providers are likely to adapt by rebalancing delivery models rather than cutting growth plans,” a brokerage analyst said.
Long-term outlook remains intact despite policy noise
While the scrapping of the H-1B lottery introduces another layer of uncertainty, most analysts believe the long-term growth trajectory of Indian IT services remains intact. Demand for digital transformation, cloud services, data analytics and AI-led solutions continues to provide a strong revenue runway.
For investors, the latest policy shift is seen more as a cost-management and margin story than a demand shock. As one market participant put it, “This is not the first time H-1B rules have tightened, and it likely won’t be the last. Indian IT companies have shown they can adapt.”
In the near term, IT stocks may remain range-bound as markets digest the policy change. Over the medium term, execution strength, pricing power and the ability to scale offshore delivery will determine which companies emerge stronger in a more regulated visa environment.
