Infosys share buyback: The Indian IT major recently announced a buyback of shares worth ₹18,000 crore, which triggered fresh buying of Infosys shares. Infosys’ share buyback was announced on Thursday last week, and over the previous six sessions, Infosys’ share price has surged from ₹1,509.70 apiece to ₹1,543.90 on the NSE, logging around 2.50 per cent. Buying in Infosys shares continues despite strong selling on Friday last week, as retail investors are looking forward to participating in the Infosys buyback announced at a substantial premium. However, the million-dollar question that needs to be answered is whether the fresh buyers can only join Infosys’ buyback and their tendered stocks will be accepted, or is it a ploy to fuel Infosys’ share price?
How does buyback fuel the stock price?
Highlighting the benefit of Infosys promoters behind the buyback of shares, Anuj Gupta, Director at Ya Wealth, said, “Buyback of shares is a way for companies to return excess cash to shareholders and reduce the number of shares outstanding. When fewer shares are out there, EPS typically increases, which can help the stock price in the medium term. Buyback of shares via the tender route means shareholders who want to sell can offer their shares at the fixed ₹1,800 price, and if more shares are offered than the company wants to buy, shares get accepted on a pro-rata basis.”
Anuj Gupta of Ya Wealth said that every share provided won’t be accepted because its acceptance depends on the number of shares tendered by shareholders. A lesser number of shares tendered means a higher acceptance ratio and vice versa. So, the premium the company offers through the buyback is not guaranteed.”
Regarding Infosys’ share buyback acceptance ratio, Seema Srivastava, Senior Research Analyst at SMC Global Securities, said, “The acceptance ratio for the buyback is expected to be low due to heavy oversubscription. Current estimates suggest that retail shareholders are likely to see a 6-20% acceptance ratio, meaning only a fraction of shares tendered by retail investors are likely to be accepted. Therefore, while the ₹1,800 buyback price offers an attractive arbitrage opportunity, retail investors must understand that only a small portion of shares tendered will be accepted.”
Income tax compliance in Infosys share buyback
Highlighting the income tax compliance involved in buyback of shares, Seema Srivastava said, “From a tax perspective, shares accepted in the buyback will attract capital gains tax, depending on the shareholder’s applicable slab. Shares not accepted will remain in the shareholder’s demat account and can be held for long-term appreciation or sold in the market at prevailing prices.”
Infosys share price outlook
Highlighting the fundamentals of Infosys, Dhanshree Jadhav, Analyst -Technology at Choice Broking, said, “We expect Infosys to deliver Growth and PAT CAGR of 10% and 11% respectively from FY25-FY28E, which is the highest amongst peers led by organic as well as inorganic initiatives. It is trading at an attractive PE of 17x FY28E EPS, amongst Tier-I peers, giving valuation comfort as well. Moreover, zero debt and strong cash & equivalents of over INR 350 Bn further increase investor comfort with respect to endless opportunities viz. strategic large deals, M&As and Buybacks,” adding, “We remain positive on the stock and maintain our Buy rating with Target Price of ₹1810.”
Should you buy Infosys shares?
Suggesting investors avoid buying Infosys shares for just participating in the Infosys share buyback only, Anuj Gupta of Ya Wealth said, “Buying Infosys shares for just participating in the buyback of shares is not advisable as the stock price is expected to be around the Infosys share buyback price on the record date. It should be bought only when someone is convinced about the fundamentals and technicals of the Infosys shares and has a strong conviction for buying this stock.”
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.