BREAKINGVIEWS: Infosys U.S. woes tarnish India's star sector

HONG KONG/MUMBAI Mon Apr 16, 2012 3:16pm IST

An employees walks past a signage board in the Infosys campus at the Electronics City IT district in Bangalore, February 28, 2012. REUTERS/Vivek Prakash/Files

An employees walks past a signage board in the Infosys campus at the Electronics City IT district in Bangalore, February 28, 2012.

Credit: Reuters/Vivek Prakash/Files

Related Topics

Stocks

   

HONG KONG/MUMBAI (Reuters Breakingviews) - 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 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 percent in 2012 up to April 13, while market heavyweight Reliance Industries had slid 26 percent.

Yet Infosys shares have plunged 15 percent since April 13, when the technology group predicted that this year's revenue growth might slip below 10 percent, 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 (TCS.NS) and Wipro (WIPR.NS) fell 5 percent and 4 percent respectively.

All this comes at a sensitive time. The upcoming U.S. election year means politicians may feel obliged to be tough over immigration issues. India has also challenged rising U.S. visa fees in the World Trade Organization. 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 percent of its workforce - in the United States.

However the investigation turns out, India's outsourcers will now find U.S. 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's likely to reduce India's allure even further.

CONTEXT NEWS

- Infosys shares slid 13 percent on April 13 after the company forecast slower-than-expected revenue growth in its current fiscal year. The technology and outsourcing company reported a 27 percent increase in fourth quarter net profits, to 23 billion rupees. But it said it expected revenues in the year ending March 31, 2013, to grow between 8 percent and 10 percent to as much as $7.7 billion.

- In its financial statement, the company said it had been notified by the U.S. Attorney's Office that it and certain employees were targets of an investigation over its use of business visas. It said it was also being reviewed by the U.S. Department of Homeland Security, and that the department had found errors in its employee documentation which may be subject to fines and penalties.

- Infosys has denied the allegations and issued a statement April 13 saying: "Any allegation or assertion that there is or was a corporate policy of evading the law in conjunction with the B-1 visa program is simply untrue."

(The authors are Reuters Breakingviews columnist. The opinions expressed are their own)

(Editing by John Foley and David Evans)

FILED UNDER:

Online Grocery Shopping

REUTERS SHOWCASE

Vodafone Tax Dispute

Vodafone Tax Dispute

India advised against challenging Vodafone tax ruling - source  Full Article 

Banking Sector

Banking Sector

India's laggard state lenders face tough sell on capital raising plan  Full Article 

Trade Deal

Trade Deal

WTO postpones trade deal by a day after last-minute objection.  Full Article 

Falling Oil Prices

Falling Oil Prices

Saudis signal no push for oil cut as market to "stabilise itself"  Full Article 

Raising Stake

Raising Stake

Nippon Life to raise stake in Reliance Capital fund unit  Full Article 

Sterilisation Camps

Sterilisation Camps

Sterilisation targets remain in all but name, critics say  Full Article 

Share Buyback

Share Buyback

Samsung Electronics to buy back $2 billion in shares  Full Article 

Microsoft in China

Microsoft in China

Microsoft to pay China $140 million for 'tax evasion'   Full Article 

Flashback: 26/11

Flashback: 26/11

The three-day attack in November 2008 left 166 dead.  Slideshow 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage