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Stocks of major information technology companies are seen rangebound this week amid lack of sector-specific triggers. Companies and investors will keep a close eye on the draft US immigration bill, which if implemented can be a cause of worry for the sector. The Indian IT industry had raised concerns that the draft US immigration bill will push up operational costs of companies deploying foreigners to work there. The key clauses in this bill hit the very foundation of the Indian IT industry, put it at a competitive disadvantage versus MNC (multi-national companies) players (IBM and Accenture) and make it more expensive for Indian IT to run operations, which could hurt longer-term sector valuations in an irreparable manner. US revenue contribution, local proportion of the US staff and company H-1B salary levels would determine the impact across companies.
The higher impact is likely at CTSH (Cognizant Technology Solutions) on 80% of revenue from the US and TCS (Tata Consultancy Services) on lowest local proportions. In our view, INFO/WPRO/HCLT (Infosys, Wipro and HCL Technologies) should be more comfortable in complying with at least the 2015 requirements and might see lesser impact. In 2015, the cap for foreign workers will be 65% of companies' workforce, and it will come down to 50% in 2016. Further, we will eye Wipro stock in the coming week after the Securities and Exchange Board of India approved the company's plan to meet the minimum shareholding norm by transferring a part of promoter stake to an Irrevocable Independent Trust. Promoters currently hold 78.28% in Wipro and need to reduce their holding by at least 80.68 mln stocks to meet the norms. Under SEBI norms, companies need to ensure by Jun 30 that at least 25% of their stocks are held by the public or minority shareholders.
