Trump Stumped IT And Pharma

Introduction

Newly elected protectionist US President Donald J Trump has evoked fear across the world on his forthcoming economic policies. Especially, the IT industry is feeling severe tremors on account of financial instability and uncertainty pertaining to the sector. IT companies that are having majority of their exposure in the US will be facing very difficult times ahead if the proposed policy changes go through in the upcoming quarters.

The actions taken by Trump such as banning visas for several countries and introducing H-1B visa reform in the US Congress. The US and China trade war will also lead to major consequences for the emerging economies.

Here is an exclusive report on Trump’s impact on the most crucial sectors, IT and pharmaceuticals.

H-1B Visa bill in USA

What is a H-1B visa?

The H-1B visa is a non-immigrant visa given by the United States to employ skilled workers from other countries for various specialised fields of occupation for a certain period of time.

What is the H-1B Visa Programme Bill?

The Bill prohibits companies from hiring H-1B employees if they employ more than 50 people and more than 50 per cent of their employees are H-1B and L-1 visa holders.

The Bill encourages companies to recruit American workers. This provision would crack down on outsourcing companies that import large numbers of H-1B and L-1 workers for short training periods and then send these workers back to their home country to do the work of Americans, according to the Senators who introduced the Bill.

H-1B visa top sponsors

US President Donald Trump is set to sign a new executive order aimed at mending programmes like the H-1B and L1 that will make it tougher for foreign workers to get work visas. Around two-thirds of H-1B visa applicants are Indian nationals, who either work for Indian IT services firms such as TCS, Infosys and Wipro or the local operations of US firms such as Accenture, IBM and Google. In 2016, the US issued 85,000 H-1B visas worldwide, of which 70 per cent went to Indians.

The Bill explicitly prohibits replacement of American workers by H-1B or L-1 visa holders. The Bill seeks to give the Department of Labour enhanced authority to review, investigate and audit employer compliance as well as to penalise fraudulent or abusive conduct. It also seeks to increase the minimum salary of H-1B visa holders by more than double to USD 130,000 per annum.

Currently, firms need not go through extensive paperwork if the potential H-1B employee has an equivalent of a Master’s or higher degree and the person is paid at least USD 60,000 on a yearly basis. At the same time, the bill aims to do away with the Master’s degree exemption.

The new President of US Donald Trump has not pointed out any country’s name or any particular company regarding H10B visa irregularities. The President’s intentions give clear indication to the Indian IT companies that the policy of not employing American workers will not be feasible in the US under the Trump administration, which will follow a simple rule — buy American, hire American. Trump’s protectionist stance may hurt not only India but also America too.

Indian IT industry’s take

The Indian IT industry believes that the so-called H-1B visa reform bill does not address the root cause of the problem of shortage of STEM skills (Science, Technology, Engineering and Math) in the US. There is perception that companies pay low salaries to people who are sent to work on these visas. Meanwhile, highly skilled IT workers on temporary visas earn competitive salaries and cost their employers as much or more than their American counterparts.

Apart from the visa curbs, the US had also recently hiked the visa fee for certain categories of the H-1B and L1 visas which has had an impact on Indian companies.

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The IT majors in America such as Apple, Google, Microsoft and IBM will be lobbying with Trump and explaining that more jobs would be generated by the US companies if they outsource to India. The potential visa curbs are coming a time when the traditional IT services sector is under pressure from automation and the shift in spending on newer areas such as digital and cloud.

Minimum wage and discrimination

The introduction of the bill in the US House of Representatives calling for more than doubling the minimum salary of H-1B visa holders to USD 130000 from the current USD 60000 would prove to be untenable for the Indian IT sector. The current H1B minimum wage of USD 60000 was stipulated in 1989 and since then it has remained unchanged.

Indian companies have been employing more US citizens in anticipation of the H-1B visa curbs. But employing more US citizens will automatically increase the cost for Indian outsourcers. As a result, it will impact their margins and overall profit. The Indian IT industry is already struggling in the form of slow growth amid big changes in the technological landscape (like automation and artificial intelligence) and global headwinds like Brexit. On the other hand, with most of the projects now on digital or cloud platforms, the need to send employees on H-1B visas will also go down.

Slump in Overseas Projects

Right now, the IT industry is not experiencing any slack in the outsourcing business. But this is an early stage and we can expect slackening of outsourcing projects in future. The Trump administration’s moves to curb temporary visa usage or limit trade could accelerate the use of automation and cloud computing options in lieu of traditional offshore outsourcing.

There are slim chances of Trump’s protectionist policies materialising into realty, but if such radial changes are forthcoming, then Indian IT companies should be ready to tackle these kind of changes. Going forward, the full-time employee model will become history. 

Increase in Employee expense

After studying factors dogging the IT sector, we can now focus on financial impact of these factors on IT companies. From the above graph, we can see that more than 50 per cent of revenue comes from the US geography. The protectionist mechanism being put in place in the US may hurt the toplines of Indian IT companies going forward.

From operational profitability point of view also, margins may drop in the forthcoming quarters. Expenses on employees are the single largest pie of the total expenditure. From the graph, we can say that more than 55 per cent of the total expenditure goes towards expenses on employees. Indian companies may see their wage costs going up with local hiring. Curbing of issue of visas may lead to increase in employee expenses in the forthcoming financial year.

Shareholders’ wealth erosion so far and future course of action

Indian IT companies crashed with the doubling of minimum wage for H1B visa. If you take a look at the above graph, it is evident that the Trump impact spooked stock market and diminished shareholders’ wealth as the topmost IT companies share prices dropped. The shareholders started factoring in the upcoming burden of increased employee expenses, slackening of IT projects from the US, etc. Though there are various factors that are right now are going against the IT sector, the valuations of the IT companies are still pretty attractive. The Trump impact is in a way a short term turbulence for the industry. We, at DSIJ, would advise our reader-investors to take this opportunity to go long on the IT sector. Going forward from a long term perspective, we are looking at quite a stable kind of scenario for the industry. 

Trump Impact on Indian Pharmaceuticals

On November 8, as it gradually became clear that Donald Trump was about to defy the odds and become the 45th President of the United States, financial markets all over the globe nosedived and nervous investors started dumping equity markets. But one of the bright spots amidst this chaos was the pharmaceutical stocks which remained resilient and gained in trade.

However, ever since the new President’s first press conference and the subsequent meeting of top pharma bosses is making pharma executives globally nervous ever since the first press meet where he attacked the big pharma companies left, right and centre and in a way indicated shape of things to come in due course of time for the pharmaceutical industry.

We in this exhaustive report try to decode the impact of Trump’s policy which will affect India’s pharmaceutical companies.

Affordable drug pricing

As it was widely expected by most of the pharmaceutical executives that the incoming US President and the Republican Party would be beneficial for the pharma industry because of the party’s long-term opposition to drug price control and its support for free markets. Now, in hindsight, the expectation has turned out to be totally misplaced. On the contrary, Trump played to the galleries and made pretty clear that his focus would be to bring much-needed sanctity to the industry by fixing key issues and the most important and populist issue being drug pricing, which impacts common Americans the most.

The US government is focussed on bringing down the cost of medicines in the country by coming down heavily on branded speciality drug makers, which in turn could be blessing in disguise for the Indian pharmaceutical industry as India enjoys a considerable amount of premium when it comes to making quality and affordable medicines globally.

Therefore, Indian pharma is set to gain on account of affordable drug pricing regime under the Trump administration. Indian pharmaceutical sector is likely to gain immensely if the move is actually set into motion, as the new US President aims to reduce drug prices since the country’s generic medicines are already affordable.

All the rhetoric concerning drug prices being astronomically high is related to branded drugs. Low cost of manufacturing of generic drugs provides Indian pharmaceutical companies the much-needed cushion and are likely to be the least affected by the anticipated policy changes in the US. If the new government in the US makes it a priority to control healthcare cost in the country, then the Indian pharma industry is best suited to take advantage of any such changes in the near future.

Lowering Taxes

The US President has asked drug makers to bring back manufacturing to the United States. In order to bring back jobs to the US and subsequently bring down the cost of drug manufacturing, the Trump administration plans to lower the existing tax rates in order to provide incentives to pharma majors to move back their respective units into the country, and at the same time, promote innovation which would help save billions of dollars in import of drugs from around the world, including India.

Getting rid of regulation

In a boost of sorts for the pharma companies globally, and especially the Indian pharmaceutical majors, the new US administration plans to get rid of regulations that are unnecessary and at times troublesome in getting the required approvals for the drugs to be sold in the markets. Trump emphasised deregulation of the strict controls on marketing medicines in the US as promised, cutting down regulations drastically. 

The President also criticised the US Food and Drug Administration's (FDA) approval process for new drugs saying that he was troubled seeing terminally ill patients waiting to get vital medicines because of the approval delays on the part of drug regulator.

Indian pharmaceuticals have been one of the losers when it comes to pending drug approval on the part of the US FDA. Indian drug manufacturers have suffered by way of revenue losses due to pending approvals from the drug watchdog. If the regulatory aspect is eased by the current dispensation, it will certainly be beneficial for the pharma companies in India as it would help clear the entire backlog of pending applications.

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Change in guard at USFDA

The President also in his recent address said that he plans to announce someone "fantastic" to lead the FDA soon. There are many names doing the rounds currently, with wide expectations that new US President in all likelihood will be going for an unconventional choice for the chief of the US FDA. If speculation is to be believed, the new chief of US Food and Drug Administration (FDA) will not be a medical practitioner. The current US FDA commissioner, Robert Califf, is a cardiologist. 

There are growing rumours of an Indian American being posted at the helm of affairs of arguably the most powerful drug regulator in the world. An Indian American, Balaji Srinivasan, who is a technology and biotechnology entrepreneur and a critic of the functioning of the FDA, is among those being considered to head the agency. He is an advocate of minimal government interference in the regulatory affairs of the FDA. However, the change of guard at the regulator is likely to be watched by the pharma top bosses globally to take cues on the type of regulatory oversight which will be put in place in days to come.

Significant Exposure to US markets

Lupin

Dr Reddy’s

Sun Pharma

Aurobindo Pharma

Glenmark Pharma

The above companies have significant exposure to the US markets and will be directly impacted by the policy and regulatory changes taking place with respect to pharmaceutical industry. These companies are facing pricing pressure in their most profitable market over the past quarters. The overhang of regulatory inspection by the US drug regulator has hurt major pharma companies in the past two years as several issues pertaining to the manufacturing process have been questioned which has resulted in delays in new drug approvals. Another worry that Indian drug companies are currently facing is the ongoing investigation by the US Department of Justice into suspected collusion by drug companies to artificially inflate prices of certain drugs. 

The US, the world’s largest market for pharmaceutical companies, remains a vital market for all the Indian companies and their revenues and profitability is directly linked to how they perform in the biggest market, which in many cases contribute almost half of the revenues earned.

The US President’s statements on pharma companies if translated into reality would mean protectionist stance favouring local manufacturers and suppliers over foreign players. This, in turn, would be a bad news for Indian companies at a time when the drug producers are already dealing with pricing pressures in the US generics market due to heightened competition and channel consolidation.

Conclusion

Donald Trump's protectionist stance could have a major impact on Indian exporters such as IT and pharma, trade relations, as well as fund flows coming into India. However, given the competitive advantage the Indian pharmaceuticals industry enjoys along with rapid development of innovative drugs will certainly give Indian companies an edge over other drug makers. We, at DSIJ, firmly believe that the issue pertaining to pharma industry has been blown out of proportion and the announcement made by the newly-elected President will not materially impact drug makers in a big way. On the contrary, it may turn out to be a boon for Indian pharma companies, especially when the focus of the government will be on affordable drug pricing, deregulating the approval procedures and innovating cheaper drugs. Evidently, Trump’s focus is mostly on the big pharma companies and their patented products and not on the generic drug offerings by the Indian pharmaceutical companies.

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INTERVIEWS

Suman Reddy, MD Pegasystem (India)

"If the world has to prosper, jobs have to be created across the world" 

1. The new Trump administration has created lot of confusion regarding the fate of Indian IT industry. Can you help us understand what is really causing worries to IT companies due to the recent developments in America?

There are couple of things that has attracted our attention towards the new policies. Firstly, the minimum wages that has been increased from USD 60,000 to USD 130,000, which once approved, 20 per cent of those visas will be used by start-up employees. That causes lot of uncertainty, not only among Indian companies but also among some big companies like Apple, Google, Oracle, Cisco, who have been relying on talent coming into the country with H-1B visas for many decades and many of these organisations were able to innovate and create only because these talents were able to migrate from rest of the world. So, by introducing a bill that discourages people to import talent by making them more expensive creates an uncertainty about the future of technology world that operates in America. So, to answer the question, in the short term, if the Indian IT companies have to pay more wages, it would certainly impact the profitability of all the companies who are using H-1B visa to send people onshore for consulting services. This would directly hit their bottomlines. So, there is uncertainty for many global organisations working in that region. The major component is the people who go to the US to study and transition to H-1B visa, or people who move to the country with H-1B visa to work in America. Their billable dollar value at times does not cross USD 130,000, so they are worried of losing their jobs, as the companies may think of giving their jobs to the local US citizens who will be ready to work at lower cost and may not even have better skills than the visa holders.

2. Can you throw some light on the possibility of clearance of H-1B visa bill in the US House of Representatives?

It will be premature for any of us to make a guess as to what would end up happening, as you might have seen in last few weeks that the American president has been introducing bills to assure citizens. Having said that, industries are lobbying, and not just IT industry, but also the American technology industry led by the largest companies of the world, as they also rely on intellectual talent working on H-1B visas. They are worrying because it would create problem in their ability to build great technology in a way. 

There are some quarters in the industry who think that the policy would reach somewhere in the middle. The government may come up with a refined policy, leaving some adverse points, like cutting down the minimum wages to a reasonable limit. There are lot such speculations going on, so we will have to wait and see how the final policy comes up. Lot of unprecedented things have happened in the last few weeks. 

3. What can Indian and other global companies do in order to mitigate any eventuality arising out of policy changes in the US?

As per some reports of few Indian IT organisations, some of the companies explained that in the last five years they have already removed or rather reduced their reliance on H-1B visas, which means that the financial impact is going to be less than what was originally anticipated. If that is true, I think they will be able to figure out a way over the next couple of years how they would mitigate it further. For a quarter or two, they might be impacted from a volume's perspective, because suddenly you would start paying more money to some of the people. On a longer term perspective, I see some benefits as well if this bill goes through. Their onshore businesses might have margin problems or profitability issues, so by the same token, they might be able to bring in more work to India through outsourcing, because if resources are more expensive onshore, these organisations will be more amenable to sell that work where the calibre is available and that becomes very difficult to curb or restrict.

4. As the new US President emphasises more about creating jobs in the US, how would company like Pega System, which is listed in the US and has its set up in other countries, prepare to deal with this move?

Technology companies' stories are different. We are innovative software company that produces world's best customer relationship management software that gets used by most sophisticated and larger organisations of the world, including the US government, British government, and many other governments in the world. The big part of technology is innovation and production of great softwares, and our entry into India was primarily not to cut costs. We came here in India because India produces top talents of the world. We hire the top talents from the best of the colleges in the country. We not only have development and R&D centres in India, we have in Europe, Australia and many other parts of the world as well, while the headquarter is in the US. Most of the technology companies establish subsidiaries at various locations so that they can attract talents that can do innovation for us. On the economic front, the US government should realise that many of these are large American technology companies, including ours. There are many other organisations that are getting benefited from the global economy. All the money that we make does not come from America alone, many of our revenues come from outside of America. When you can get financial benefit from outside the country, there should not be a problem of creating jobs outside of America as well. All I can say is that we, including other growth companies, are going to continue creating jobs in America but that does not mean that we will stop creating jobs in India. We are looking for talent across the world, if the world has to prosper, jobs have to be created across the world.

5. Do you see incoming business getting impacted going forward for the Indian IT industry?

I personally do not see any impact on the revenue as such. The amount of business or the nature of business should not be impacted. However, in the long run, some of the mix of work will be relooked at. Assuming the bill does pass, we can anticipate that there might be some rebalancing of the work done onshore versus the amount of work done offshore. I think we would come up with more innovative solutions than what we are doing right now. The uncertainty has many directions, and I see more opportunity as opposed to being worried as such.

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F C Kohli - Former CEO, TCS

"Let our leaders, bureaucrats guide us in uncertain times"

During these days of uncertainty looming large over the IT sector in India, in a lazy winter afternoon, Souvick Bhaduricatches up with F C Kohli, the Former CEO of TCS and 'Father of India's Software Industry.' Excerpts:

"We need direction from our leaders at this juncture," says F C Kohli, the 'Father of Indian Software Industry,' during a faded winter afternoon in south Mumbai addressing a crowd. Referring to the recent political developments in the USA and change of guard, Kohli, the man who had led India's software revolution and been instrumental in inception of TCS way back in 1968, believes India's political figures and bureaucrats must be exposed in industrial happenings to guide the country's industries and also safeguard their interests. “How many Members of Parliament have experience in the industry, how many of your bureaucrats, i,e Indian Administrative Services officers have experience in industry.We have very little direction from our leaders,” Padma Bhushan Kohli said while attending Paradigm-2017 in Mumbai's St. Xavier's College. While he avoids taking further direct questions on the situation, he admits the time is critical, the developments in the USA are sensitive in nature but India has to further gear up to tackle all the challenges being faced by it at this time.

This somewhat is a logical set up for a potential country like India where the country is filled with resources, who are hardworking, focused and produces results. Be it core problems of the country or plotting a roadmap for the growth of the country, understanding and implementing any solution efficiently would become much robust and easier if the country has people from industries in the Ministries or administrative services, the man who held coveted directorial positions in the boards of Tata Sons Ltd., Tata Honeywell Ltd., Tata Unisys Ltd., says. 

Under his management, TCS had grown many folded. He believes that IT is not just about software, it is about hardware too F C Kohli Former CEO, TCS . Kohli has recently said, “I was actively involved in the decision to bring IBM to India. A JV for hardware manufacturing and support in India, Tata-IBM, was set up in 1991-92.“ At present, major part of India’s IT business comes from export, facilitating countries like the USA and different parts of Europe among the other major countries of the world. However, this stream of export was first initiated by Kohli. It was 1974, when TCS got its first project from Burroughs, major computer maker back then based in Detroit US, to make a healthcare software that would be packaged with their computers. They could successfully deliver the work on time. Appreciating the work done by the company, Burroughs gave more work and remained one of the steady client for TCS. “Since then we never looked back” Kohli said in a statement. What went unnoticed was that the dependency on US kept increasing since then. The damage was already done. “We were so happy in exporting rather than learning new languages.” he added. 

This situation has reached to an extent where, at present “Indian IT industry generates as much as USD 160 billion of revenue, out of which USD 110 billion comes from export” he stated. Countries like China also has revenue on a similar line, but they are not dependent on export. He believes that India is doing good but India should use the talents it has for further development of the country. He believes that gaining more knowledge is required, but with the existing knowledge pool that the country has, is sufficient to make revolution and help the country progress exponentially. He says, “India has no business to be poor”.

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“IT companies should take a lesson from Trump’s visa policy, invest in future to secure future of stake-holders”

His name has been synonymous with India’s information and communications technology sphere. He had been an advisor to the country’s Prime Minister and had also headed National Knowledge Commission. He holds 20 honorary PhDs and close to 100 global patents. Sam Pitroda knows the ICT sector better than most of the ‘czars’ frequently visible on news television screens. Living in Chicago, Pitroda has been closely observing happenings in the Indian IT and ICT sectors since Donald Trump took over the mantle from his predecessor Barack Obama and the former started coming up with various policies affecting India Inc. almost every morning.

In an exclusive interaction with Joydeep R Ray, he talks about the present and future of India’s IT industry. Excerpts of the long-distance telephonic interview:

Q1. Sam, thank you for taking time to talk to DSIJ. As the USA administration once again clarifies its stand on H-1B visa policy, how do you see Indian IT companies being hit in the near and the long term?

A: At this time, I can sense some immediate slowdown in the Indian IT industry. Trump’s ‘America First’ visa policy will definitely hit the outsourcing phenomenon and I can see it already hitting Indian entities. Now that is what I can see and feel on a near-term basis. IT companies based in India and depending heavily on the vast American markets will not be having much options to avert the threats coming from this new visa policy launched by the new President of the USA.

When you ask me about the long-term effect, let me tell you things may get worse for the IT biggies in India. Loads of work which earlier had been done by Indians, will be transferred to their American counterparts. Companies will not have much choice in it. Work in the fields of artificial intelligence, machine reading, automation will be the worst hit. Over a period of time, you will find lots of such works being automated, thus keeping hardly any scope for the Indian IT companies and their employees in certain specified segments. Those routine jobs like coding, etc. will be eliminated. And that is the future. All these are for sure going to hit the Indian IT/ICT companies badly. Let us now be prepared for the same.

Q2. Were Indian companies ready for this? Did they see it coming?

A: Unfortunately, Indian IT companies never had a long-term view in such cases. They are rich, some of them are even richer than Google, Facebook and all. They have been saving their money, building a huge corpus as they never invest in products—their only investment is in human resources. They never even invest in future. When you don’t invest in future, then such global tensions, changes in policies of client countries hit you badly—that is what has happened in this case. Indian software companies operate in a weird manner in certain cases and conditions. They will go abroad and help sort out issues being faced by Citi Bank but they won’t help a local co-operative bank to manage its things properly. They talk global but remain reluctant about global burning issues. Then you can’t even criticise them as they are rich. But the way they operate or so far have been operating, it has to change else every global happening will hit them badly.

Q3. Now that things have changed in the USA and so among Indian IT companies—would you suggest them to go aggressive in terms of other geographical locations?

A. Why not? They have already started tapping the markets in Japan and African countries—they must also tap more Asian countries and aggressively. But all said and done, no other market can be like the USA when it comes to churning profits for Indian IT companies. So that is why I see their spirits and numbers getting dampened in the near-term and the long-term.

But then there are other virgin areas they need to tap. Go young, pick up younger people, buy young companies with fresh, new thoughts. Go on an acquisition spree, go building products—change the way you had so far run your companies.

Q4. When it comes to building global companies, India really could not make much headway even after 70 years since its Independence. Where did we fail, where did our IT companies fail?

A. They never take risks. Do they create a risk fund—the answer is, no. Why did none of Infy, TCS, Wipro, etc. could become a Google—tell me? This happens when you are too inclined to strengthen your profit, make huge profits but not look beyond a point. Could not any of India’s IT companies become a Google, if they would have really thought global beyond a point—they did not. Do we have something like a software fund? Do we take risks, try new things? See, the world is changing very fast. As of now, we are not ready to cope up with such fast changes. While the companies can’t look beyond their profit margins, we have other problems in the government. As a country, we are too much bureaucratic, there are red-tapes everywhere. We don’t have task-oriented organisations, everything here is process-oriented. Too many forms to fill in, too many unnecessary checks and balances and all these also affect technological advances.

Q5. Where do the Indian IT companies go from here, then?

A: For now, at least for two financial years, I don’t see any improvement in numbers, rather things may go otherwise. Considering the USA policies do not change, and I mean visa policies, and tomorrow there may be some more new policies coming from the White House, things do not look very bright.

This learning should now be encashed by our IT companies and they must invest in future. They should recognise the world is changing very fast, they should stop relying on their past models. They must invent new models, new business plans, think new. The old formulas which have built an Infosys or TCS, may not work even in the near future.

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Dhananjay Sinha, Head Institutional Research, Economist & Strategist, Emkay Global

"If any visa reform happens, it will impact FY19 performance"

What will be the impact of the proposed H-1B visa reforms on the Indian IT companies?

A.

There has been a flurry of visa reform bills that have been introduced in the US Congress in recent weeks. Additionally there is a leaked draft of the President’s executive order. Note that any major changes will however have to go through a legislative process only. The President’s executive order can only change the process of administration and the leaked draft also has proposals along those lines. The recommendations from the bills that have been tabled vary, with the High Skills xx Act introduced by Rep Zoe Lofgren appearing the most onerous currently. However, this bill has been introduced by a Democrat senator and hence the odds of going through are less. Additionally, the points to note are that legislative process in the US is a long cumbersome process and it takes months if not weeks for any bill to finally see the light of the day. This essentially means that even if any visa reform process happens, it will mostly have an impact on FY19 performance. Prima facie, it certainly appears that these actions will increase the local cost of delivery for Indian IT companies and hence will be detrimental on margins. The impact on margins will be dependent on several factors, including,

(1) Percentage of revenues from North America (higher the proportion, higher the impact)

(2) Percentage of staff in the US on visa (higher the proportion, higher the impact)(3)    Average salary of the staff on work visas (lower the salary compared to the benchmark, higher the impact)

(4)    Current margin profile (lower the margins, higher the impact)

Since we do not have all the details on the average onsite compensations for companies, it is difficult to estimate the exact quantum of hit.

Which companies will be impacted the most if the visa reform goes through?

Once again it if difficult to estimate the exact quantum of hit on individual companies due to reasons pointed out above, but Wipro and HCL Tech have a higher share of local staff as compared to other tier-I techs.

What are your expectations of growth prospects for Indian IT companies in 2017? What would you advise retail investors to do with respect to IT stocks at current juncture?

Outside of the risks from an adverse policy change on visas, we believe that CY17 will be a better year in terms of client IT spending. We reviewed our stance in early December 2016 and are of the view that with normalisation in spending, we should see an uplift in operational performance for tier-II techs. Hence, we prefer tier-II techs over tier-1's. While valuations are reasonable even for tier-I’s, we do not think there will be any meaningful change to the growth trajectory for the larger companies given scale challenges. However, tier-II techs have seen a dismal financial performance in CY16/FY17 and these companies will benefit from the normalisation in spending. Mindtree and Hexaware are our top picks in the tier-II coverage universe.

Dr Subhash C Mandal, Vice President, Regulatory Affairs-Pharmacy Division, Indian Pharmaceutical Association

"Indian cos need to change focus towards niche products and new drug delivery systems"

1. There has been a suggestion from the new US administration on cutting down drug prices in return for fewer regulations. What are your views on it? Do you think the pricing is astronomical as claimed by the US administration? Do you see reducing prices is feasible option?

Price of medicines are too high in the US and reduction in prices will help the US people. Medicines are expensive not only because of taxes alone, but it is also due to new drug development cost which is very high. American companies would have to find ways and means to contain increased cost of drug development. 

2. Do you see Trump’s plans to reduce the regulatory power of the Food and Drug Administration (FDA) would impact pharma companies in general?

Reduction of regulatory power of the US FDA may help the innovator companies to launch a new drug within a short span of time and it will reduce spending on marketing a new drug in the US. But it may not be good for the patients as they may have a chance of lowering screening as they have to go through increasing chance of compromised safety and efficacy of the new drug.

3. Do you see any major impact on Indian pharma companies having major exposure to the US, if the new administration's effort of slashing taxes to promote manufacturing in the US succeeds?

Presently Indian pharma companies are taking advantage of their low production costs to compete with their counterparts resulting in more exports. Tax reduction proposed by the US administration will help companies in the US to produce drugs at lower price which may increase competition for the Indian manufacturers, but tax reduction is a fraction of the cost of drug development.

4. How will restrictions on pharmaceutical imports and manufacturing abroad can impact the Indian pharmaceutical industry?

Yes, it may have negative impact on exports by Indian pharmaceutical industry, but Indian companies have capability to set up industry abroad.

5. Where do you see the sector as a whole heading in the upcoming years, after such radical changes on the global front? 

Experts are of the opinion that the US administration is not going for price negotiation as per the recent indication. If so, there may not be much impact on overall performance of the global market.

6. Do you think Indian pharma entities rather than depending too much on the US markets, should also explore European markets further with their emphasis on new drug delivery? 

Yes, that may be an option, but the EU market is very small in terms of volume. There is already a move by Indian manufacturers in the direction of foraying into the African and Middle East markets. Indian manufacturers cannot depend upon generics any more for export market, but there is a need to change focus in the area of niche products and new drug delivery systems. 

7. Do you think more aggressive routes should be taken by pharma companies in India to woo the domestic markets so that in case of such changes happening across the border, our pharma entities do not get affected?

In spite of tremendous development in drug production in India, a large sector of the population has no access to modern medicines. Innovative strategies need to be developed to cater to this huge market. Moreover, Indian companies should invest in drug development for diseases prevailing in third world countries.

Narayan Shetkar, Director, Singhi Advisors

“Good opportunity to buy pharma stocks in next 2-3 months”

Will the generic pharma industry get impacted by the recent statements coming from the US administration?

The Trump administration’s initiative to bolster the capacities of the US drug industry with an onus on local manufacturing and price reduction has spooked Indian generic drug manufacturers, who foresee their export market being impacted on account of following reasons:

1) India is among the top exporter of generic pharmaceuticals to the US. Indian generic drug companies have grown significantly post-enactment of Obamacare law in 2010, which allowed the use of biosimilars. This doubled India’s pharma exports to the US from USD 31 billion to USD 66 billion. Revoking and replacing Obamacare will impact Indian pharma companies to some extent.

2) Border taxes on imports could lead to higher cost for Indian pharma companies in terms of exports.

3) Change in pricing policy, creating a manufacturing hub in the US will definitely affect Indian pharma players but not on a large scale. Indian generic pharma industry will be moderately impacted due to change in policies in the US.

The new US administration is of the view that drugs should be manufactured in the US. What is your view on it?

Companies moved out of the US in search of cheap labor in China and India. Returning back to the US will increase manufacturing costs due to minimum wage policies and other infrastructure expenses being high. There will be a change in the deal scenario with more outbound investments in assets in the US markets, rather than going for brand purchasing deal. The insistence of the Trump administration on localising drug manufacturing could eliminate the sizeable cost benefits enjoyed by Indian drug exporters all these years.

Will Indian companies be ready to manufacture in the US if tax sops are provided? How will it impact the earnings?

If corporate taxes are significantly lowered, it will incentivise the US-based and Indian companies to set up manufacturing bases in the US. For quick profitability, Indian companies should go for outbound deals or enter into JVs with the US-based manufacturing firms.

What would you advise investors to do with respect to pharma stocks at the current juncture?

Presently, pharma stocks have corrected significantly due to the US FDA inspections and President Trump’s speech. The next 2-3 months present a good buying opportunity for investors from a long term perspective.

What are your expectations of growth prospects for Indian pharma companies in 2017?

The political uncertainty created post-US elections, upcoming elections in European nations and Brexit are expected to significantly impact the Indian pharma sector, with companies strongly focused on exports facing a sluggish period. However, companies with a larger focus on the domestic market will continue to register stronger growth owing to good domestic consumption.

Jagat Shah, Vice Chairman, United States' - India Importers' Council

" For them, 'America first,' why it wont be 'India first' for us"

Trumponomics marks paradigm shift in American policies, the hallmark of which is protectionism – be it to protect jobs or US’s business interests. Indian companies would do well to respond to the policy shift by exploring new markets, thereby derisking their business from being US-centric, and also developing new technologies and products to grow their business.

The Trump victory, however unlikely it may have seemed, has now created waves of uncertainty around the world – what his victory would entail for the rest of the world is anybody’s guess. Adopting a strong protectionist stance, Trump has taken many bold steps in the first few days, one of which is putting a cap on H1B visas. He could do this in two ways: either by raising the auction fees or by raising the minimum wage. He even plans to legislate reduction in issuance of green card visas to half.

Recent developments in the Indian IT sector underscores our proclivity to panic in the short-term and setting on a course-correction later. The 'Protect and Grow American Jobs Act,' was reintroduced in the US Congress recently. It proposes an increase in the minimum annual salary of H-1B visa-holders to $130,000, and the elimination of the Masters Degree exemption, among other things. BSE IT index tumbled down 4 per cent a day after the proposed announcement!

Narayan Murthy, the former CEO of Infosys in an interview with Mint about Trump’s supposed executive order for H1B visas, said, “I think even if the executive order comes, we should look at it more as an opportunity for Indian companies to become more multi-cultural than we have been, rather than looking at it as a lacuna.” This points to the necessity of level-headedness Indian companies across various sectors need to show in the face of rising wave of protectionist backlash worldwide.

However, one cannot blindly ignore the recent developments happening in the US. Till now, Indian tech companies hired 90 per cent of workers in the US on H1B visas. In 2015, out of the 1,72,748 H1B visas, a major chunk of it was acquired by Wipro, TCS and Infosys. Even American companies such as Cognizant had started using the same model by recruiting their Indian staff on H1B visas to drive down their operational cost. A sudden increase by almost 100 per cent in the minimum wage for holding an H1B visa is definitely a big blow to the Indian IT industry.

The model for the Indian IT industries to rev up their revenues was to increase the overall profit margins by hiring cheap indigenous labour, as they cannot transfer the cost burden on to their clients to remain competitive. But with the current model going defunct anytime soon, Indian IT firms are finding alternatives, right from developing new technology resulting in shifting the reliance of outsourced jobs to venturing out to new markets such as China and Japan. Every market has a saturation point in terms of its growth, and while we might not have any means to validate that, recent developments do provide an indication that it is time to venture out into unchartered waters.

The US alone constitutes 62 per cent of Indian IT exports. Besides foreign market, traditional IT firms can even look back home and add shareholder value by innovation. Buzzwords such as Big Data, Cloud Computing, Analytics etc. pose tremendous opportunity to explore in terms of investment. India has never even remotely been a good IT consumer, as it has been a large IT exporter. This might be a good time to strengthen the local IT market, especially with government policies such as Digital India, Smart Cities and Start-up India having been put in place. One can even debate the rise of a fledgling IoT market due to Swacch Bharat and Smart Cities, which shows tremendous business opportunities. 

Trump has been a long-standing critic of Obamacare and had vowed to scrap the scheme aimed at providing affordable healthcare to Americans. For India’s pharma sector, this can prove to be a huge red flag, if it is implemented. Pharma sector constitutes the second biggest exports of India to the US. In a way, India’s strength in manufacturing affordable generic drugs complemented the objectives of Obamacare.

According to the US Census Bureau data, when Obamacare was signed into law in 2010, India’s pharma exports to the U.S were $31 billion. Five years of Obamacare more than doubled pharma exports from India to the US to $66 billion. If Trump implements his promise to scrap Obamacare, Indian pharma companies may suffer a hit. However, Indian pharma companies in the last 5 years have invested in American pharma companies, and this can prove to be a very strong push of Indian pharma’s influence in American policies. Additionally, the increased USFDA compliance of Indian pharmaceutical companies such as Lupin and Zydus during the onset or in the early period of 2017, has provided a further impetus to the industry’s sentiments on exports.  

Both these sectors, being major employment sectors in India, if they take a hit because of Trump’s executive orders, it can prove a temporary blow to them, causing people to lose jobs. Does the industry have strategies to shield itself from such a paradigm shift in policies is yet to be seen. The impact on countless Indians studying in the US also needs to be taken into account. A team being led by NASSCOM to meet the new administrators in US provides some indication.

All said and done, India and the USA are strategic partners and natural allies, being world’s two largest democracies. Both will recalibrate and adjust their policies and strategies to each other in a way which benefits both economies and people, not just one. That is perhaps what Trump aims to achieve! Jai Ho India-USA friendship!

Trump has been a long-standing critic of Obamacare and had vowed to scrap the scheme aimed at providing affordable healthcare to Americans. For India’s pharma sector, this can prove to be a huge red flag, if it is implemented. Pharma sector constitutes the second biggest exports of India to the US.

Even American companies such as Cognizant had started using the same model by recruiting their Indian staff on H1B visas to drive down their operational cost. A sudden increase by almost 100 per cent in the minimum wage for holding an H1B visa is definitely a big blow to the Indian IT industry.

Every market has a saturation point in terms of its growth, and while we might not have any means to validate that, recent developments do provide an indication that it is time to venture out into unchartered waters.