India-US Trade Agreement Sparks Renewed Optimism in IT Sector
The recent landmark trade agreement between India and the United States has ignited a fresh wave of optimism within India's substantial information technology sector. Valued at approximately $283 billion, the industry stands to gain significantly from reduced tariffs and potentially eased visa regulations, according to industry experts and financial analysts.
Market Response and Share Performance
Following the announcement, shares of India's leading IT services companies experienced notable gains during morning trading sessions. Tata Consultancy Services Ltd (TCS), Infosys Ltd, HCL Technologies Ltd, Wipro Ltd, and Tech Mahindra Ltd witnessed jumps of up to 4%, reflecting investor confidence in the bilateral agreement's positive implications for the sector.
Specific performance metrics showed TCS up by 2%, Infosys by 2.84%, HCL Technologies by 2.57%, Wipro by 0.7%, and Tech Mahindra by 0.98% as of midday trading. This market enthusiasm stems from expectations that the trade deal will alleviate some of the profitability pressures that have been affecting the $245 billion IT services industry in recent times.
Key Provisions and Expected Benefits
The bilateral trade agreement, confirmed by both nations' leadership, includes several crucial provisions:
- Reduction of tariffs on Indian goods exports to the United States from 50% to 18%
- Elimination of the reciprocal 25% levy previously imposed
- India's commitment to cutting tariffs on US goods to near-zero levels
- Removal of non-tariff barriers across multiple sectors including energy, technology, and agriculture
Analysts from Bernstein highlighted in a February 3 research note that while the deal primarily covers manufactured goods, improved US-India relations could lead to reduced scrutiny on IT services and lower the risk of additional punitive measures such as extra taxes. Their non-consensus upgrade of the IT sector to overweight at the beginning of the year remains intact, given the industry's substantial exposure to the US market.
Visa Scrutiny Relief and Industry Adaptation
One of the most significant expected benefits for IT outsourcing firms is the anticipated reduction in scrutiny from US lawmakers regarding H-1B visa hiring practices. This development comes after considerable challenges faced by the industry throughout 2025, including:
- A presidential proclamation imposing a tenfold increase in H-1B application fees to $100,000
- Joint letters from US senators to TCS and Cognizant CEOs addressing concerns about hiring practices
- Proposed legislation like the HIRE Act aimed at increasing taxes on companies hiring offshore employees
In response to these pressures, major IT firms have implemented strategic adaptations:
- Increased local hiring in the United States
- Shifting employees to near-shore locations
- Collective lobbying efforts exceeding $2.7 million in 2025
- Focus on higher offshoring and nearshoring to boost margins through reduced employee costs
Infosys CEO Salil Parekh emphasized during a January 14 earnings conference that the company maintains a balanced approach, with the majority of US employees not requiring visas and continuing deployments using a mix of US and India-based resources.
Financial Context and Revenue Streams
The renewed optimism emerges against a backdrop of solid financial performance from India's IT giants. Revenue figures for the 2024-25 fiscal year demonstrate the sector's substantial scale:
- TCS: $30.18 billion
- Infosys: $19.28 billion
- HCLTech: $13.84 billion
- Wipro: $10.51 billion
Notably, more than half of this revenue originates from the United States, highlighting the critical importance of favorable US-India relations for the sector's continued growth. Cognizant, which follows a January-December financial calendar, reported $19.74 billion in revenue for 2024.
Analyst Perspectives and Future Outlook
Financial institutions have expressed varied but generally positive outlooks regarding the trade deal's impact on India's IT sector:
Elara Capital analysts anticipate that with robust US economic growth expected through much of 2026, combined direct and indirect gains could exceed expectations, leading to positive spillover effects on key Indian export players' earnings for fiscal year 2027. They emphasize monitoring how services exports to the US evolve as Global Capability Centres become the execution model amid changing visa scrutiny landscapes.
Motilal Oswal Financial Services analysts note a potential sentiment revival that had faced setbacks due to visa issues and negative press around outsourcing. They expect improved deal momentum from US clients as relations between the two nations strengthen.
Cautious Optimism Amid Ongoing Challenges
Despite the positive developments, industry leaders maintain a measured perspective. TCS CEO K. Krithivasan acknowledged during a January 12 analyst call that while the company had expressed confidence in international business growing faster in the current fiscal year than in 2024-25, this now remains an "aspiration" rather than a certainty.
The CEO noted that demand environment improvements observed in the second quarter of 2025 continued into the third quarter, suggesting gradual recovery rather than immediate transformation. This cautious optimism reflects the understanding that while trade agreements create favorable conditions, the IT sector must continue navigating complex global dynamics, tax-related uncertainties, and evolving client requirements in its largest markets.
The India-US trade agreement represents a significant milestone in bilateral relations with potentially far-reaching consequences for India's technology sector. As implementation progresses and market conditions evolve, industry watchers will closely monitor how reduced tariffs and eased regulatory pressures translate into tangible benefits for India's IT services companies and their global competitiveness.
