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Informist, Monday, Sept. 22, 2025

By Anshul Choudhary

MUMBAI – Indian information technology companies may see an impact of as much as 130 basis points on margins in the financial year 2026-27 (Apr-Mar) after the US raised the one-time fee for H-1B visa applications to $100,000, according to comments by six brokerages. The extent of the impact will be on the higher side if companies continue with the current pace of H-1B applications and lower if they are able to replace H-1B visa-dependent employees with local hires in the US or increase hiring in India.

Brokerages Nomura and Prabhudas Lilladher expect IT companies' margins to fall up to 100-130 basis points in FY27 if they continue with the current pace of applications under the H-1B visa programme. Mid-cap companies are expected to see a bigger fall in margins compared with large-caps, according to data from the two brokerages. Motilal Oswal Financial Services expects the impact on margins to be visible in FY27 as visa applications for FY26 are already locked in.

Prabhudas Lilladher expects LTIMindtree to be hit the most with the company's earnings before interest and tax margin seen down 130 bps in FY27. Nomura expects Persistent Systems to be the worst hit with EBIT margin in FY27 expected to fall nearly 100 bps. Prabhudas Lilladher expects no impact on the margins of KPIT Technologies while Nomura expects Coforge to be better off than others with a fall of only 11 bps in margin.

Companies might get some respite if they manage to replace the H-1B visa-dependent employees with local hires in the US. However, margins may still see a slight decline as local hires would have to be paid higher salaries, an analysis by JM Financial Institutional Equities showed. Considering higher wages for US employees, JM Financial said the EBIT margins of Indian IT companies are likely to fall up to 48 bps if companies replace all of their H-1B visa-dependent employees over six years. Any impact on the EBIT margin will be negligible, however, if companies replace 50% of their visa-dependent employees with local hires and keep the remaining 50% offshore, i.e., hired in India.

Brokerages, however, cautioned of the possibility of worse-than-expected decline in margins if increased hiring in the US leads to wage inflation. "It is, however, unclear to us the impact, if any, on onsite talent cost (due to higher demand) over the medium to long term," Nomura said.

LIMITED IMPACT

Brokerages were largely convinced that the impact of the higher H-1B visa fee will be limited as Indian IT companies have already cut their dependence on the visa programme over the past decade. For example, H-1B visa approvals given to Infosys and Wipro came down to 2,004 and 1,523, respectively, in FY25, from 9,305 and 6,536 in FY15, according to data from the US Citizenship and Immigration Services. JM Financial said the top 10 Indian IT companies have 1.2-4.1% of employees on H-1B visas currently.

The spike in H-1B visa fees is expected to further bring down H-1B applications. Companies may almost stop hiring through this process or limit the use to extremely critical roles, brokerages said. "Average onsite annual wage in CY24 (calendar year 2024) stood at USD 106,000 for IT companies, almost equivalent to the additional fee now being levied. Therefore, IT companies would further reduce dependence on the H-1B visa programme and increase localisation," ICICI Securities said in a report.

Indian companies may increase hiring in India and in countries outside the US, such as Canada and Mexico, to deal with costs due to the visa fee hike. "...it (the visa fee increase) would trigger higher offshoring to reduce costs," ICICI Securities said. There is also a possibility that companies may raise prices charged to clients to offset the impact of higher hiring-related cost, brokerages said.

Some brokerage estimates showed that if companies played their cards right, margins could actually improve. HDFC Securities said if companies reduced their H-1B applications by 90%, distributing the resultant hiring equally in the US and offshore locations, and raised prices for H-1B resources by 10%, EBIT margins could improve by 30 bps.

Having said that, the cost benefits related to a shift in hiring to India may not matter if the US passes the Halting International Relocation of Employment Act. The proposed law intends to impose 25% tax on US companies that outsource jobs. "This could affect outsourced employment models and offshoring economics," Emkay Global said.  End

US$1 = INR 88.30

Edited by Rajeev Pai

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