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Infosys share buyback plan: Here's why Infy is mulling buyback, what it means for investors

India Today logo India Today 17-08-2017
Infosys share buyback on Aug 19: Here's why Infy is going for buyback, what it means for investors © Provided by India Today Infosys share buyback on Aug 19: Here's why Infy is going for buyback, what it means for investors

The Infosys stock opened over 3 per cent higher on Thursday post the announcement that the company would consider a proposal for buyback of its equity shares at its meeting scheduled on August 19.

Infosys Secretary AGS Manikanta earlier this week made an announcement saying, "The board of directors of Infosys Limited will consider a proposal for buyback of equity shares of the company at its meeting to be held on August 19, 2017." He, however, did not reveal details of the proposed share buyback. Share buybacks usually improve earnings per share and return surplus cash to shareholders.

WHY IS INFOSYS GOING FOR SHARE BUYBACK?
Earlier in April, Infosys had announced that it would pay up to Rs 13,000 crore to shareholders during the current financial year through dividend and/or share buyback. In its announcement it said: "The board has identified an amount of up to Rs 13,000 crore to be paid out to shareholders during financial year 2018, in such a manner (including by way of dividend and/or share buyback), to be decided by the board, subject to applicable laws and requisite approvals, if any."

Infosys' buyback decision has come in the back of massive investors' pressure who wanted the company to utilise its cash reserves of USD 6 billion either through share buyback or generous dividend. The pressure had grown further after other tech companies such as Cognizant and TCS announced their mega buyback offers worth USD 3.4 billion and Rs 16,000 crore, respectively, to return surplus cash to shareholders. HCL Technologies has also approved a buyback of up to 3.50 crore shares worth Rs 3,500 crore.

WHAT IS SHARE BUYBACK?
Share buyback means re-purchase of shares by a company to reduce the number of shares trading in the market. Market experts believe that it usually shows the confidence of promoters in the future of the company. There are a number of reasons why companies go for buybacks. Companies go for buyback in cases where they want to reward investors, increase promoter holding, reduce public float and check the falling stock price, reduce volatility and build investor confidence.

MODES OF SHARE BUYBACK
Some common buyback routes companies take are tender offer and open market purchase. In tender offer, the company makes an offer to buy a certain number of shares at a specific price directly from shareholders. Share buyback ensures all shareholders are treated equally, however small they are. In open market purchase, the company decides to acquire a certain number of shares. It fixes a price cap and can buy for any price up to that. Most companies prefer the open market route. The biggest difference between the two -tender offer and open market purchase- is that the price in the tender route is fixed.

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