TCS, Wipro slump as Australia, Canada tighten visa rules

IT stocks fell for a third consecutive day amid rising protectionism measures adopted by key markets for Indian outsourcers.

"Immigration laws are being tightened not just in the US - where the Senate approved an Immigration Bill last week with damaging clauses for Indian IT - but also in countries like Australia and Canada," global investment bank Nomura said in a report.

Nomura has a reduce ratings on Infosys (on weak fundamentals) and TCS. TCS is fully valued and is likely to be hit hardest by immigration bill, Nomura says.

Wipro was the biggest loser among frontline names, down 2.7 per cent to Rs 343.45. Tata Consultancy Services closed down 0.95 per cent at Rs 1,485.70, while Infosys shares ended flat at Rs 2,405.30 on the Bombay Stock Exchange.

These measures increase lead time for hiring resources and increase cost of servicing clients onsite. Australia approved amendments to its temporary work visa (457 visa program), which effectively debars outplacement of these resources to clients (hurting T&M contracts) and increases lead time for hiring resources through longer advertising periods.

Time and materials (T&M) contract is an arrangement under which a contractor is paid on the basis of actual cost of direct labour, usually at specified hourly rates.

Infosys and Satyam (now Tech Mahindra) have 8-9 per cent revenues from Australia.

Canada amended its temporary foreign worker (TFW) program, which removes wage flexibility for foreign workers (earlier allowed to pay 15 per cent lower than prevailing wages), suspends fast track visa processing (used to take 10 days), with visa processing to now take 3-5 months and provides a plan to transition to Canadian workforce over time.

iGATE gets 12 per cent of revenues from its second-largest client.

Nomura prefers HCL Tech and Wipro on greater revenue/margins surety, less severe impact from the immigration bill or prices factoring in risks from the bill, and more reasonable valuations.