H1-B visa effect: Infosys, TCS, Wipro tank up to 5%

Among top-tier Indian IT stocks, HCL Tech is the most insulated from H1-B visa worries, analysts say

Stocks of largecap  information technology (IT) companies such as TCS, Infosys and Wipro tanked up to 5% in intraday trade on reports that a legislation has been introduced in the US House of Representatives, which among other things, calls for more than doubling the minimum salary of H-1B visa holders to $130,000.

The move, experts say, will make it difficult for the software services firms to replace American employees with foreign workers, including from India.

Reacting to the development, S&P BSE IT index shed 5% to 9401 points in intra-day trade to hit its lowest level since November 24, 2016. The index settled the trade at 9586, down 3%. By comparison, the frontline indices, the S&P BSE Sensex and the Nifty 50 – were trading around 0.7% lower each at 12:40pm.

Among individual stocks, TCS ended 4% down to Rs 2230, Infosys slipped 2% to Rs 929, while HCL Tech and Wipro dipped 4% to Rs 809, and 2% to Rs 457 on the BSE.

"The proposed minimum salary of $130,000 is 30% more than US$100k that was expected to come in the worst case. It is also important to monitor the time to be given to IT companies to realign their service delivery. Over the medium to long-term we expect Indian IT companies to implement the pyramid structure in the US they have successfully implemented in India. However, in the near term this would impact EBIT margins," says A K Prabhakar, head of research at IDBI Capital.

"We have only two BUYs amongst IT large-caps – HCL Technologies (HCLT) which we expect to be the least impacted amongst its peers and Infosys," he adds.
 

According to reports, the High-Skilled Integrity and Fairness Act of 2017 introduced by California Congressman Zoe Lofgren prioritises market-based allocation of visas to those companies willing to pay 200% of a wage calculated by survey, eliminates the category of lowest pay, and raises the salary level at which H-1B dependent employer are exempt from non-displacement and recruitment attestation requirements to greater than $130,000. This is more than double of the current H-1B minimum wage of $60,000 which was established in 1989 and since then has remained unchanged.

“Among top-tier Indian IT stocks, HCL Technologies is the most insulated from H1-B visa worries because it has the least number of temporary visa-holders as a proportion of employees based onsite in the US (around 40% as per our estimate). We reckon that Infosys ranks worst (highest) on this metric at over 70%,” says Sagar Rastogi, an analyst tracking the sector with Ambit Capital.

“We remain watchful of developments on this front, but our base case scenario remains that top-tier firms like TCS will be able to adapt to any legislation without significant impact to revenue growth or margins. Key offsets could be: (1) greater use of collaborative technologies, (2) more local hiring, especially at the junior level and (3) greater use of near-shore delivery centres,” he adds.