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Stocks of major information technology companies are seen weak over the next five trading session due to uncertainties and worries arising from the draft US immigration bill that was unveiled last week. The Indian IT industry and Nasscom have raised concerns that the draft US immigration bill will push up operational costs of companies deploying foreigners to work in the country.
According to the bill, companies will require to hire 25% local workforce in 2014 and this number will increase to 35% in 2015 and 50% in 2016. Most Indian IT companies have 50-80% of their staff as H-1B or L-1 visa holders currently. The H-1B is a non-immigrant visa that allows US companies to temporarily employ foreign workers in speciality occupations. The duration of stay is three years, extendable to six years.
Further, the bill may restrict employees with H-1B visas from working at the customer sites, although they can work from global delivery centres. This would require a business model change for Indian IT companies and raise the cost of onsite staffing for projects.
The bill also specifies that if an employer has 50 or more employees, and over 30% but less than 50% are H-1B or L-1 employees who do not have a green
card petition pending, then the employer will need to pay the US government $5,000 per additional worker.
Similarly, in case the employer has 50 or more employees, and more than half of these workers are H-1B or L-1 employees who do not have a green card
petition pending, then the employer will have to pay a $10,000 fee per additional worker.
We believe, in the worst-case scenario, the impact on margins of Indian IT companies will be threefold. First, visa fees will catapult almost 100%. Second, employee fungibility will be reduced due to lower onsite employees (H1-B holders) and companies will have to maintain a bench of local hires, reducing utilisation level. Third will be the higher average cost of local hires vis-a-vis visa holders.
