UPSC Prelims—Economy; Mains GS-III—Economy; GS-II—Regulation (SEBI/Companies Act)

Snapshot

Infosys has approved a ₹18,000-crore share buyback through the tender offer route at ₹1,800 per share, for up to 10 crore shares (about 2.4% of equity). The aim is to return surplus cash, optimise the capital structure, and signal confidence in future cash flows. Think of it as the company giving excess cash back to owners while slightly shrinking the number of shares.

Key market terms 

• Publicly listed company: Its shares trade on a stock exchange; anyone with a demat and broker can buy/sell.
  
• Public listing / IPO(Initial Public Offering): First time a company offers shares to the public and lists on the exchange.
  
• Share buyback / repurchase: Company buys its own shares (usually at a premium) and cancels them, so total shares fall.
  
• Tender offer: Company fixes a buyback price and a record date; eligible investors “tender” shares. If too many are offered, acceptance is proportionate.
  
• Record date: Cut-off day to decide who is eligible.
  
• Premium: Extra over the market price (for example, ₹1,800 vs a lower market price).
  
• EPS (earnings per share): Profit ÷ number of shares; if shares reduce, EPS usually rises.
  
• Capital allocation: How a company uses cash—projects, acquisitions, debt repayment, dividends, or buybacks.

Other big Indian buybacks (for perspective)

• Tata Consultancy Services: Multiple large tender-route buybacks (around ₹17,000–₹18,000 crore in recent years).
  
• Wipro (2023): About ₹12,000 crore via tender.
  
• Bajaj Auto (2024): About ₹10,000 crore via tender.

Why companies do buybacks & how this one works 

Why now (the logic): Mature technology companies often generate steady free cash flows. If there aren’t enough high-return projects to invest in immediately, the firm can pay a dividend or buy back shares. Buybacks can 

(a) hand back cash, 

(b) lift EPS by reducing share count, 

(c) offset dilution from employee stock grants, and 

(d) signal that management thinks the stock is undervalued or that cash flows are strong. 

Impact on shareholders

Benefits

• Assured premium on accepted shares (₹1,800).
  
• EPS uplift over time because the share count falls.
  
• Positive signal about future cash flows and management’s view of value.
  

Caveats

• Acceptance uncertainty: If many investors tender, your acceptance ratio may be low.
  
• Tax bite: Buyback receipts are taxed as your income, which trims net benefit.
  
• Opportunity cost: If you sell into the buyback and the stock later rallies, you may miss upside.
  

Simple approach: Long-term holders can tender a part and hold a part—capture some premium now and keep exposure for future gains.

Exam Hook

Mains (10–12 marks):
“Why do mature Indian technology firms prefer large tender-route buybacks? Using Infosys’s ₹18,000-crore plan, discuss capital allocation choices, signalling, EPS effects, acceptance and tax nuances, and when dividends may be preferable.”
Hints: surplus cash vs reinvestment; tender route fairness; EPS/return-ratio optics; shareholder-level taxation; acceptance-ratio risk; peer examples (TCS, Wipro, Bajaj Auto); cases where steady dividends might suit income-seeking investors better.

Prelims :
Consider the following statements about tender-route share buybacks in India:

1. Eligibility to participate is based on a record date announced by the company.
2. The proceeds received by an individual in a buyback are taxed as income in the shareholder’s hands.
3. A buyback generally reduces the number of outstanding shares, which can lift earnings per share.
4. If investor tenders exceed the buyback size, shares are accepted on a proportionate basis.
   

Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 1, 3 and 4 only
(c) 1, 2, 3 and 4
(d) 2 and 4 only

Answer: (c) 1, 2, 3 and 4.