The IT sector is a key part of the Indian stock market. It drives growth, creates jobs, and brings in foreign currency. The performance of major companies like TCS and Infosys, along with new digital players, often influences the success of IT-focused mutual funds.
However, with recent changes in the U.S. administration’s H1B visa policies, investors have started to wonder whether these changes can hurt Indian IT companies and thereby IT mutual funds over the long run. Let’s understand this relationship.
What is the H1B Visa, and why does it matter?
The H1B visa is a U.S.work permit that allows U.S. companies to employ foreign workers in specialised fields like technology, engineering, and finance. A very large part of India’s IT workforce operates under this in the U.S., enabling Indian IT companies to service global clients with efficiency.
Any changes to visa rules, whether in the form of stricter eligibility, lower quotas, or increased costs, have a large influence on how Indian IT companies deploy their talent overseas, while managing their margins.
Here are the recent changes in the H1B visa for Indians:
- H1B Visa Fee Hike
- End of Automatic Work Permit Extensions
- Stricter Citizenship Test
- Increased Vetting for Green Cards
- Tougher Employer Compliance
How the H1B Visa factor plays into it fund performance
IT mutual funds, as their name suggests, primarily invest in technology stocks. These stocks are closely dependent on global tech demand and outsourcing trends. U.S. and European clients contribute a large portion of revenues for major Indian IT players like TCS, Infosys, etc., and thus, visa policies are an indirect driver for their profitability.
Policy uncertainty often triggers short-term volatility in IT stock prices, as markets react to potential restrictions on the movement of talent and project execution. However, history has shown that the long-term impact is often moderate. Here’s why:
- Increased Offshoring: When on-site deployment starts becoming expensive, IT companies offshore more operations to India, bringing back margins.
- Automation and AI Adoption: The companies invest in automation tools to cut the dependency on on-site manpower.
- Diversification of Geographies: IT majors are expanding in Europe, Asia, and Australia to reduce over-reliance on the U.S. market.
Therefore, while policy shifts can temporarily affect IT stocks, the structural demand for digitisation remains in place, making the IT industry resilient.
Long-Term impact of H1B Visa restrictions
Over the years, IT mutual funds have emerged as a reliable thematic investment avenue for investors seeking exposure to technology-led growth. Their portfolios include established companies like Infosys, TCS, HCL Tech, and Wipro, along with new-age digital service providers and SaaS companies.
Even with H1B restrictions, these funds remain attractive to investors in the long term because:
- Strong balance sheets
- Healthy cash flows.
- Consistent dividend payments.
- Growing global tech adoption.
But for investors, the key is to focus on the long-term structural trend rather than on short-term policy noise. If chosen wisely, the best IT mutual funds can keep on delivering steady risk-adjusted returns.
Risk management
IT mutual funds can be a great addition to any growth-oriented portfolio, but investors must also manage the risk of sector concentration. A smart approach is to deploy a portion of their capital in overnight funds or liquid funds for stability with liquidity.
These funds provide cushioning during market volatility and help investors efficiently balance their risk-return equation.
Conclusion
Changes to the H1B visa may temporarily affect how investors feel about the market, but India’s IT industry has shown that it can adapt.
Any negative impact from U.S. visa rules will be balanced out by the increase in digital transformation, the demand for automation, and the competitive pricing of Indian companies.
As a result, investors need to maintain their patience, diversification, and long-term convictions despite transient policy headlines.
Mehar Mozan 
Charlotte