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Published on 10/07/2020 12:28:43 PM | Source: Emkay Global Financial Services Ltd.

IT Sector Update - Some visa challenges to contend with Emkay Global

Posted in Broking Firm Views - Sector Report| #IT Sector #Emkay Global Financial Services Ltd. #Sector Report

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Some visa challenges to contend with

* We hosted a conference call with Mr Rajiv Khanna of Immigration.com on June 18to discuss the impact ofa potential US Executive order that may suspend temporarily intake of certain visa holders, andother actions speculated by media reports. Rajivbelieves that the likelihood of an Executive order is high and it is likely to comein the next few weeks.

* Rajiv believes that depending on the contours of the order, it may attract significant litigation. Recent lawsuits and verdicts against USCIS (e.g.ITServe Alliance v. L. Francis Cissna) couldhelp the case ofemployers and employees with regards to asignificant increase in RFEs and Denials during the Trump administration.

* While not completely immune to further pressures, we note that Indian techs in general have been reducing their dependence on visas by hiring more people locally. Even during Covid-19 times, companies have resorted to virtual transition on deals for clients.

* We have been seeing increasing evidence of a ‘Shift towards offshore delivery’ inthe past 18-24 months and see greater impetus on offshore delivery,driven by both macro-economic factors andindustrialization/maturity of digital spending.

 

* RFEs and Denials have increased inrecent years; recent lawsuits/decisions in favor of contesting parties may drive reduction in Denials: We note that the Notices of Intent to Deny (NOIDs) and Request for Evidence (RFE) have gone up substantially under the Trump regime, given the much public leanings of the administration (as seen in the ‘Buy American Hire American’ order in 2017). We note that Denials (both Initial and Continuing) surged over the years for H1B applications (see Exhibit 1). Apart from the increase in the number of denials for H1B visa petitions, there is a marked increase in the number of RFEs (for both H1B and L1 visa) along with reduction in approvals with petitions with RFEs (for H1B).This has also resulted in a record number of H-1B–related federal lawsuits filed againstUSCIS in recent years.

 

Indian offshore techs reducedvisa dependence; further impetus on offshore driven by macro itself will limit hit from any potential action on this front

While not completely immune to potential visa-related tightening, Indian techs have been reducing their dependence on H1B visas significantly (WITCH group cumulatively had less than 5,200 H1B approvals in FY19 vs. ~23,000 in FY13) by hiring more people locally. This transition has come with its own set of challenges such aslimiting flexibility of moving resources offshore when not on project andhit on utilization, and thus,some adverse impact on margins. In addition, we are seeing once again a shift towards greater offshore delivery (as compared to ‘onshorization’ in play for a better part of CY10-20).Interestingly, Infosys’offshore revenues/volumes have been outgrowing Onshore revenues/volumes despite itsmuch touted claims oflocalization and hiring over 10,000local resources in the US since mid-CY17. Given a weak macro environment and potential reset in client businesses due to Covid-19, we see a case for greater offshoring in the sector over the medium term.

 

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