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

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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)

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Comments (2)
kpvidya1999 wrote:
If the US continues with lame duck issues, India should close out USA out of all defence deals. Let us not take the bogey that China is a threat always. While history of chinese is bad, we have them as neighbours and have to work amicably with them. Let us feed, clothe and house ourselves and then believe this superpower nonsense.Business ethics is a oxymoron same as cricket australia. Under Mohandas Pai there were so many ‘aberrations’ in selections which were astounding, but none like Murthy saw fit to check out. Unless there is a great deal of probity in systems, corrupt practices destroy any business. Instead of checking out how talent is ‘picked’ up by infosys during the Pai era, Murthy is harping on the fall in standards in institutions like IITs. Ha Ha Nice jokes. And Iam sure the man who is advising to stay out of Infosys stock, will be having huge holdings in benami names.

Apr 16, 2012 9:09am IST  --  Report as abuse
Wakjob222 wrote:
Companies ruined or almost ruined by imported Indian labor

Adaptec – Indian CEO Subramanian Sundaresh fired.
AIG (signed outsourcing deal in 2007 in Europe with Accenture Indian frauds, collapsed in 2009)
AirBus (Qantas plane plunged 650 feet injuring passengers when its computer system written by India disengaged the auto-pilot).
Apple – R&D CLOSED in India in 2006.
Apple – Indian national and former Goldman Sachs board member Rajat Gupta charged with leaking Intel and Apple secrets over the phone.
Australia’s National Australia Bank (Outsourced jobs to India in 2007, nationwide ATM and account failure in late 2010).
Bell Labs (Arun Netravalli took over, closed, turned into a shopping mall)
Boeing Dreamliner ES software (written by HCL, banned by FAA)
Bristol-Myers-Squibb (Trade Secrets and documents stolen in U.S. by Indian national guest worker)
Caymas – Startup run by Indian CEO, French director of dev, Chinese tech lead. Closed after 5 years of sucking VC out of America.
Caterpillar misses earnings a mere 4 months after outsourcing to India, Inc.
Circuit City – Outsourced all IT to Indian-run IBM and went bankrupt shortly thereafter.
ComAir crew system run by 100% Indian IT workers caused the 12/25/05 U.S. airport shutdown when they used a short int instead of a long int
Computer Associates – Former CEO Sanjay Kumar, an Indian national, sentenced to 12 years in federal prison for accounting fraud.
Deloitte – 2010 – this Indian-packed consulting company is being sued under RICO fraud charges by Marin Country, California for a failed solution.
Dell – call center (closed in India)
Delta call centers (closed in India)
Duke University – Massive scientific fraud by Indian national Dr. Anil Potti discovered in 2012.
Enron, WorldCom, Qwest, and Tyco all hired large numbers of foreign workers from India before their scandals.
Fannie Mae – Hired large numbers of Indians, had to be bailed out. Indian logic bomb creator found guilty and sent to prison.
Goldman Sachs – Kunil Shah, VP & Managing Director – GS had to be bailed out by US taxpayers for $550 BILLION.
GM – Was booming in 2006, signed $300 million outsourcing deal with Wipro that same year, went bankrupt 3 years later
HP – Got out of the PC hardware business in 2011 and can’t compete with Apple’s tablets. HP was taken over by Indians and Chinese in 2001. So much for ‘Asian’ talent!
HSBC ATMs (software taken over by Indians, failed in 2006)
IBM bill collecting system for Austin, TX failed in 2012 written by Indians at IBM
Intel Whitefield processor project (cancelled, Indian staff canned)
Intel – Trade secret stolen by Indian national Biswamohan Pani in 2012.
JetStar Airways computer failure brings down Christchurch airport on 9/17/11. JetStar is owned by Quantas – which is know to have outsourced to India, Inc.
Kodak: Outsourced to India in 2006, filed for bankruptcy in Jan, 2012.
Lehman (Jasjit Bhattal ruined the company. Spectramind software bought by Wipro, ruined, trashed by Indian programmers)
Medicare – Defrauded by Indian national doctor Arun Sharma & wife in the U.S.
Microsoft – Employs over 35,000 H-1Bs. Stock used to be $100. Today it’s lucky to be over $25. Not to mention that Vista thing.
MIT Media Lab Asia (canceled)
MyNines – A startup founded and run by Indian national Apar Kothari went belly up after throwing millions of America’s VC $ down the drain.
Nomura Securities – (In 2011 “struggling to compete on the world stage”). No wonder because Jasjit Bhattal formerly of failed Lehman ran it. See Lehman above.
PeopleSoft (Taken over by Indians in 2000, collapsed).
PepsiCo – Slides from #1 to #3 during Indian CEO Indra Nooyi’ watch.
Polycom – Former senior executive Sunil Bhalla charged with insider trading.
Qantas – See AirBus above
Quark (Alukah Kamar CEO, fired, lost 60% of its customers to Adobe because Indian-written QuarkExpress 6 was a failure)
Rolls Royce (Sent aircraft engine work to India in 2006, engines delayed for Boeing 787, and failed on at least 2 Quantas planes in 2010, cost Rolls $500m).
SAP – Same as Deloitte above in 2010.
Singapore airlines (IT functions taken over in 2009 by TCS, website trashed in August, 2011)
Skype (Madhu Yarlagadda fired)
State of Indiana $867 million FAILED IBM project, IBM being sued
State of Texas failed IBM project.
Sun Micro (Taken over by Indian and Chinese workers in 2001, collapsed, had to be sold off to Oracle).
UK’s NHS outsourced numerous jobs including health records to India in mid-2000 resulting in $26 billion over budget.
Union Bank of California – Cancelled Finacle project run by India’s InfoSys in 2011.
United – call center (closed in India)
US Navy F-18 jet crashes into Virginia apartment building on 4/6/12 after outsourcing F-18 work to India’s Tata.
Victorian Order of Nurses, Canada (Payroll system screwed up by SAP/IBM in mid-2011)
Virgin Atlantic (software written in India caused cloud IT failure)
World Bank (Indian fraudsters BANNED for 3 years because they stole data).

I could post the whole list here but I don’t want to crash any servers.

Apr 18, 2012 12:14am IST  --  Report as abuse
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