IT firms have found a workaround H-1B visa hike. And it’s boosting margins.

Five of the country’s 13 major IT solution providers – Infosys Ltd, HCL Technologies Ltd, Tech Mahindra Ltd, Persistent Systems Ltd and L&T Technology Services Ltd (LTTS) – cited offshoring and nearshoring as one of the reasons for improved operating margins in the September quarter and will continue to do so in the future. waiting for it to continue.

Higher offshoring or nearshoring helps increase margins by reducing employee costs, especially salaries. Offshoring involves relocating work from the customer’s base to countries further away, while nearshoring involves shifting employees to neighboring countries.

While offshore has always been an integral part of their operations, technology services providers are moving their employees to India, Canada or Mexico to counter stricter U.S. visa regulations.

On September 19, U.S. President Donald Trump signed a Presidential Proclamation requiring companies to pay $100,000 annually, instead of $1,000, for each new foreign worker brought to America under an H-1B work visa.

Margin increase

Infosys, HCLTech, Tech Mahindra, Persistent Systems and LTTS reported operating margins of 21%, 17.4%, 12.1%, 16.3% and 13.4%, respectively, in the second quarter of 2025-26.

HCLTech, the country’s third largest IT firm, recorded the highest quarter-to-quarter increase of 110 basis points (bps), followed by Tech Mahindra 100 basis points, Persistent 80 basis points, Infosys 20 basis points and LTTS 10 basis points. A basis point is one hundredth of a percentage point.

“Project Ascend helped us deliver 50 basis points of gains from higher usage during the quarter,” Shiv Walia, HCLTech’s chief financial officer, said during the Oct. 13 analyst call.

Project Ascend is the margin expansion program that HCLTech announced during its Investor Day presentation last August. One of the key pillars of this is to rely on a global delivery model that aims to strategically increase the number of nearshore and offshore locations.

Midsize IT outsourcing providers with revenues between $1 billion and $5 billion also highlighted margin growth. “We benefited by about 30 basis points from planned offshoring for one of our large healthcare customers,” Vinit Teredesai, Persistent’s chief financial officer, said during the post-earnings analyst call on Oct. 14.

Smaller peer LTTS also cited offshoring as one of its margin levers. “Operational efficiencies such as optimization of pyramid, leveraging AI and automation and project delivery, review of low-margin portfolio and tail accounts, optimization of higher offshore and G&A (general and administrative) costs will further help us in improving margins,” Amit Chadha, managing director of LTTS, said during the October 17 post-earnings analyst call.

Meanwhile, two of the country’s five largest IT services firms saw higher offshoring in the future increasing their operating margins.

“As you know, we have a large capacity to deliver locally from the Americas, whether it’s Canada, Mexico or Brazil. So we’re looking at beefing up those operations in case some of the work can be done from there,” Tech Mahindra chief executive Mohit Joshi said in response to a question about margin leverage during the Oct. 14 post-earnings analyst call.

Infosys, the country’s second largest IT outsourcing provider, took a similar stance. “Mathematically, if you do more nearsourcing and more offshoring, that should mean more margin, but it depends on the extent of offshoring, nearshoring and to what extent we do more local hiring,” Infosys chief financial officer Jayesh Sanghrajka said during the post-earnings analyst call on Oct. 16.

Infosys CEO Salil Parekh said the company will continue to grow nearshore. “We’re building nearshore centers in the U.S. and around the U.S., whether it’s Canada or Mexico or other places in Latin America or Europe, etc. So that part has gone extremely well. We’re pretty confident, and that’s going to grow with all the changes,” he said during the post-earnings press conference on Oct. 16.

Long term playbook

At least one expert said companies that avoid publicly criticizing offshoring are concerned about the issue. “Even larger players such as Tata Consultancy Services Ltd and Wipro are quietly using these levers to stabilize margins in an environment where demand is sluggish,” said Phil Fersht, managing director of global business research consultancy HFS Research.

Fersht added that moving delivery to offshore or near-shore locations will continue to boost margins over the next few quarters as onshore costs rise due to visa fee hike and talent inflation in the US, Indian IT firms’ largest market accounting for more than three-fifths of their revenues.

Homegrown IT services firms are the biggest beneficiaries of H-1B visas, as some of their largest customers, such as Microsoft, Apple, JPMorgan Chase, Bank of America, and Walmart, are based in the United States.

From lawmakers to lawyers, the chorus of opposition to Trump’s sweeping visa reforms, including a $100,000 application fee for new H-1B applicants, is growing.

But this strategy alone cannot sustain long-term growth. “The long-term margin story will depend on how well these firms use savings to reinvest in automation, AI and higher-value services. Offshoring can protect margins, but it does not drive growth,” Fersht said.

A second analyst agreed. Peter Bendor-Samuel, founder of Everest Group, said, “TCS and Wipro are two companies that are aggressively increasing overseas exports. Both are ruthlessly reducing the costs of their operations. However, both of these companies are struggling with growth more than the rest of the industry.”