Have Recent Buybacks By IT Companies Mattered To Shareholders?

Shares of Infosys Ltd. gained 3 percent in early trade on Thursday after the information technology company announced that its board would consider a buyback.

The board will consider the share buyback proposal on August 19, the company said in an exchange filing on Wednesday. That comes nearly four months after the software services provider, while announcing the January-March earnings in April, said it had earmarked Rs 13,000 crore to be returned to shareholders either through a buyback or a dividend or a combination of both.

While Infosys’ buyback may quell a long-standing demand to reward shareholders from its idle cash, it’s not clear if the move will boost the stock, which was trading at Rs 1,003 apiece in early trade on Thursday.

Recent Buybacks

• In February, TCS announced that it would spend Rs 16,000 crore in a buyback, the biggest ever in India. It purchased over 3 percent of its equity at an 18 percent premium to the market price.
• In May, HCL Technologies said it would buy back shares worth Rs 3,500 crore – or about 2.8 percent of its equity at a 17 percent premium to the prevailing market price.
• More recently, Wipro in July announced a buyback worth Rs 11,000 crore, amounting to a purchase of nearly 8 percent of company’s equity at a 19 percent premium to the then prevailing price.

Given the buyback premiums, it is no surprise that shares of all three companies currently trade between 10 and 16 percent below their buyback prices. But the exercise has not been in vain.

All three companies’ shares are currently trading 1 to 7 percent higher than their pre-buyback prices, whereas the NSE IT Index has gained 0.8 percent since the first buyback was announced.

Even when compared to the average 30-day price prior to the buyback announcement, shares of all three companies show a gain of 2 to 6 percent.