US PERM Ban Won't Hit IT Revenues; Pharma Margin Cap Limited to 7%
Kotak Neo analyst says US PERM ban won't hit Indian IT revenues and pharma margin caps are limited to 7%.
The recent decision by the US administration to suspend Permanent Labor Certification (PERM) processing for major Indian technology giants like TCS and Infosys has sparked significant market anxiety. However, experts suggest that the fears regarding immediate revenue loss are largely unfounded.
Speaking in Mumbai, Shrikant Chouhan, Head of Equity Research at Kotak Neo, clarified that while the move is a significant immigration development, its connection to the immediate financial health of IT firms is minimal. He urged investors to distinguish between long-term immigration hurdles and short-term business operations.
Minimal Impact on IT Revenue Streams
The core of the concern lies in whether the suspension of PERM processing will prevent Indian tech firms from maintaining their workforce. Chouhan addressed this by highlighting the actual scale of the applications involved. According to his analysis, these major IT companies represent only a small fraction of the total landscape.
- Application Volume: Reports indicate that these major firms account for only 2 per cent to 3 per cent of all PERM applications filed.
- Visa Nuance: PERM is primarily a pathway toward permanent residency and is not a strict prerequisite for every H-1B visa holder to continue their current employment.
Because the impact on the actual workforce and subsequent billing is expected to be negligible, Chouhan noted that IT companies have continued to trade higher despite the news.
Pharma Sector Gains Clarity on Margin Caps
The pharmaceutical sector also saw a shift in sentiment following government clarifications regarding trade margins. Initial market fears suggested that capping trade margins at 30 per cent on MRPs for non-scheduled and anti-cancer drugs would have a devastating effect on drug pricing and company profits.
Early estimates had predicted a price impact of nearly 20 per cent on the selling MRP of cancer drugs. However, new clarity has significantly calmed these fears. Chouhan explained that the actual impact is expected to be much more contained, falling between 2 per cent and 7 per cent.
This clarification has acted as a catalyst for positive movement across healthcare and hospital stocks, providing much-needed stability to a sector that was previously bracing for significant regulatory headwinds.
Market Outlook and Investment Strategy
The broader Indian equity markets showed signs of resilience, recovering from a massive 1,000-point plunge in the BSE Sensex to open significantly higher. This rebound was attributed to several stabilizing factors:
- Falling US bond yields.
- Reduced volatility in AI-related stocks globally.
- Stable domestic market fundamentals.
For investors looking to navigate the current volatility, Chouhan suggests that valuations have reached crucial historical support zones. He recommends a long-term perspective, focusing on large-cap companies and utilizing market dips as entry points.
Key Support and Resistance Levels
Looking ahead to the upcoming trading sessions, Chouhan has identified a specific range for the benchmark index to watch:
- Major Support: 22,150
- Secondary Support: 21,750
- Resistance/Target: 23,000
If the market can sustain its position above these support levels, a revisit to the 23,000 mark remains a strong possibility.