India's top two IT firms Tata Consultancy Services (TCS) and Infosys will be the "worst affected" companies by a sharp hike in work permit visas issued by the US government, according to a brokerage firm.
Last week, the US government increased the fee to $4,000 for H-1B visas and $4,500 for L-1 visas. These work permit visas allow companies to hire highly-skilled workers from other countries when there is non-availability of such workers in the US.
As domestic IT companies are among the top recipients of such visas issued by the US, analysts have raised concerns about a steep hike in visa fee weighing on margins of IT firms.
"Higher visa costs will hit outsourcers that have large exposure to US markets. Infosys and TCS would be the worst affected," said IDFC Securities in a report.
While Infosys earns 60% of its income from the US, 50% of the revenue for TCS comes from North America. Although, Wipro and HCL Tech derive 50% of their revenues from the US market, the US visa usage of these companies is not so high compared to their peers.
"Infosys uses proportionally highest H-1B and TCS has the biggest pool for L-1," IDFC Securities said.
In 2014, Indian workers accounted for receiving 70% of the 65,000 H-1B visas handed out by the US. TCS was the top receiver of H-1B visas last year, obtaining 5,650. Infosys (3,454) and Wipro (3,048) were also among the top receivers, The New York Times reported.
As TCS and Infosys spend large amounts on acquiring the US visas, doubling of fee on such visas will increase their costs sharply.
Overall, doubling of H-1B visa fee by the US is expected to cost Indian IT companies nearly $400 million. The Indian IT sector did not expect such a steep hike in visa fee, though it was prepared for an increase.
Rise in visa costs will hit the service-based IT companies the most, while it will also affect product development companies.
"We see an impact of 50-70 basis points as the charge is applied to extension of H-1B (awarded for 3 years with scope of 3 years extension), which was not the case earlier. Our sensitivity analysis indicates earnings impact of 2-4 per cent due to the new law," NDTV Profit quoted IDFC analyst Shashi Bhusan as saying.