Media reports suggest Infosys and TCS are being probed by the US Department of Labor for the potential misuse of temporary H-1B visas.
Regulatory issues in the US have never been significant enough to derail the outsourcing growth story. A number of bills aimed at tightening immigration and protecting domestic jobs have been proposed in the US over the past 12 years, and all but one has failed to find passage through Congress. The most recent was the immigration reform bill of 2013, which was stalled by the House of Representatives, despite being approved by a large Senate majority. This is not to say Indian IT companies have been able to do business completely unhindered in the US – Infosys was fined, and there has been a sharp increase in visa fees over the years along with high visa rejection rates – but overall we believe they have weathered these setbacks well.
Both Infosys and TCS provided immediate clarifications and expressed confidence in having met H-1B rules. We do not expect any significant adverse impact from this new probe.
Near-term headwinds are receding, as currencies turn favourable and the outlook for spending in the banking, financial services and insurance (BFSI) and retail segments has improved a shade. That said, the improved outlook does not affect our long-term growth forecast. We have ‘buy’ ratings on HCL technologies and Infosys, and ‘hold’ on TCS.