Infosys has announced buybacks of nearly 9,300 Crore and it will commence from 7th of Dec, 2022. We will see today what is buybacks and should the retail investors participate in this.
What is sharebuybacks?
Share Buyback is a corporate action in which a company buys back its shares from the existing shareholders usually at a price higher than market price.
Two ways that companies conduct a buyback
- Tender Offer: The company shareholders receive a tender offer that requests them to submit, or tender, a portion or all their shares within a certain time frame.
- Open market: A company can also buy its shares on the open market at the market price.
Effects of Buyback
- Number of shares outstanding in the market reduces
- EPS increases, PE decreases
- ROE increases
Why should we do sharebuybacks?
- If a company thinks that the current market price of the stock is quite undervalued
- Mainly to utilize the cash on books as it does not have any good growth opportunities available. It is tax efficient way of distributing profits to shareholders
- Most of the management compensation packages are linked to earnings per share. Since, number of shares are reduced in a buyback, it results in boosting the EPS.
- Buying shares by using debt is a major red-flag
Infosys Buyback Offer details:
Infosys Earlier Buyback:
How to participate in Infosys share buyback?
Conclusion: Long term shareholders may not participate in the buybacks. Investors should also note that there will be tax implications also if they participate in the buybacks based on the capital appreciation.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.