Infosys' Record Rs 18,000 Crore Buyback Explained
Infosys Ltd has made a significant announcement regarding a share buyback worth Rs 18,000 crore, marking the largest repurchase in the company's history. Set at a price of Rs 1,800 per equity share, this buyback plan is designed to enhance shareholder value during a challenging period, as the company's share price has seen a nearly 20% decline since January.
The buyback initiative will involve repurchasing up to 10 crore shares, which constitutes about 2.41% of the total paid-up equity share capital. This move is not only a strategic financial decision but also reflects a growing trend among Indian IT firms to return cash to their shareholders. Companies like Wipro, HCL Tech, and TCS have also undertaken similar buybacks in recent years.
The rationale behind this buyback is driven by Infosys’ strong cash reserve of approximately Rs 24,455 crore. Analysts believe that the current stock prices do not reflect the actual value of the company. As Sumit Pokharna, Vice President at Kotak Securities, suggests, the company aims to leverage its cash reserves to boost shares that have fallen significantly amid geopolitical uncertainties and market volatility.
For shareholders, participating in this buyback can offer various benefits, particularly in terms of tax efficiency. Depending on their tax bracket, some retail and long-term shareholders may find this buyback more advantageous. Under current tax policies, proceeds from the buyback will be treated as dividends, which are taxable. However, the cost of acquisition can be considered as a capital loss, potentially useful for offsetting future capital gains.
As the buyback unfolds, it is anticipated that Infosys will maintain its progressive dividend policy, with expectations of increasing dividends annually. In FY25, the company had already paid a dividend of 43% per share, indicating its commitment to returning value to shareholders. This strategic move not only aims to stabilize share prices but also reinforces investor confidence in Infosys as it navigates through current market challenges.
