Infy US woes take sheen off Indian IT Inc

Infosys’ legal troubles in the United States may complicate life for India’s feted outsourcing industry. Outsourcers have been a relative bright spot in a market dogged by worries about India’s growth prospects. 

But an investigation into allegations that Infosys broke visa rules to get Indian employees into the United States will put them on eggshells. Until the air clears, this is another reason to avoid Indian stocks.

Indian outsourcers have been a shelter of sorts for investors, offering a way to play the India theme without the worries about domestic growth and political paralysis. They had a recession-proof appeal: companies eager to cut costs in good times would be more desperate to do so in bad times. As a result, Infosys shares had fallen only 8 per cent in 2012 up to April 13, while market heavyweight Reliance Industries had slid 26 per cent.

Yet Infosys shares have plunged 15 per cent since April 13, when the technology group predicted that this year’s revenue growth might slip below 10 per cent, and warned that the visa investigations could affect earnings, the first time the case appeared in its financial statements since the allegations emerged in early 2011. Shares of competitors Tata Consultancy Services and Wipro fell 5 per cent and 4 per cent respectively.

All this comes at a sensitive time. The upcoming US election year means politicians may feel obliged to be tough over immigration issues. India has also challenged rising US visa fees in the World Trade Organisation. The industry is maturing, too. While once it could rely on moving jobs from expensive America to cheap India, many big companies now want services performed locally, which puts Infosys up against the likes of IBM and Accenture. The Indian group now has 15,000 employees — 10 per cent of its workforce — in the United States.

However the investigation turns out, India’s outsourcers will now find US revenues come at greater expense. Even if a legal crackdown or political backlash doesn’t make it harder to bring Indian workers in, making sure the i’s are dotted and t’s are crossed is likely to raise costs and put a brake on expansion. 

For global investors, that is likely to reduce India’s allure even further.

CEO Shibulal avers there is no misuse

Bangalore/Washington, IANS: Infosys Ltd has denied misusing B-1 or H1-B visas to send its employees to the US for onsite work.

“We do not have a policy to use the B-1 visa to circumvent the H-1B visa. Similarly there is no policy to misuse the H1-B programme,” Infosys Chief Executive S D Shibulal claimed.

Shibulal said the company had a policy that required its employees to fully comply with the immigration laws and visa rules in 30 countries across the world.

“On occasions where individuals have reported seeing or hearing of employees who may have acted in ways inconsistent with our policy, we investigated them and have taken disciplinary action, including dismissal from the company,” he asserted. 

Infosys said the number of its employees travelling to the US on B-1 visas, at any point of time, was only a small fraction (two percent) of all US travel undertaken by its employees.

“The average trip to the US for an employee on a B-1 visa is less than four weeks, not up to a year, as the (CBS) story suggests. The numbers and calculations reported in the story are inaccurate and misleading,” the company reiterated.