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Home / Industry / Infotech /  IT firms may raise fees as US increases cost of work visas

Export-driven information technology (IT) outsourcing firms are likely to raise client fees and process more work from their local centres to cushion the impact of an increase in fees for work visas in the US, their top market, investors said.

The new US measure will shave 50-60 basis points off the profit margins of information technology firms including Tata Consultancy Services Ltd (TCS) and Infosys Ltd from the next fiscal year, they said.

The country’s roughly $150 billion outsourcing sector generates about three-quarters of its revenue from the US, where outsourcing companies send thousands of staff every year to work at client locations.

Industry leader TCS is likely to post a 10% increase in its December quarter net profit on Tuesday, while Infosys is expected to report a 3% rise in profit on Thursday, according to Thomson Reuters data.

TCS, second-largest exporter Infosys and No. 3 Wipro Ltd have in the past year increased their focus on high-margin digital and cloud-computing services, as competition and pricing pressure on routine IT services dented growth.

The measure passed last month by the US Congress doubled the cost of sponsoring workers under short-term H1B and L1 visas, and spurred concerns of future curbs on IT work sent overseas by US companies before the 2016 US presidential election.

“The higher visa fee is one of the headwinds... but they can expect to recoup some of the costs through contract renegotiations and the stronger dollar," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.

IT industry lobby group Nasscom (National Association of Software and Service Companies), estimates that domestic IT companies would incur an extra $400 million a year in costs due to the increase in visa fees.

“The higher fee is unjustified because it is designed to hurt India firms disproportionately," said R. Chandrasekhar, president of Nasscom. “Immigration reform in general in the US is something that has to happen sooner or later."

But as Indian IT firms sharpen focus on high-margin digital technology services instead of routine technology infrastructure maintenance and software application projects, they would need to send fewer employees to client locations overseas, analysts said.

“These companies know that with digital services you can cut down the number of people that need to work out of client locations and that visa costs do not pose a long-term threat," said Srivastava, whose funds own Infosys and TCS shares.

“With legacy business shrinking, the larger digital becomes, the more it can move the needle in terms of top line growth," said Moshe Katri, a sector analyst at CRT Stern Agee based in New York. Reuters

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