Infosys' Record Rs 18,000 Crore Share Buyback Explained

Infosys Ltd has made headlines with the announcement of a Rs 18,000 crore share buyback, marking a significant milestone in its journey. This buyback, the largest in the company’s history, will see the tech giant repurchase 10 crore shares at a premium price of Rs 1,800 each. This decision comes in light of a nearly 20% decline in Infosys’ share price since the beginning of the year, reflecting both market challenges and the company's confidence in its intrinsic value.

A share buyback, often called a share repurchase, is when a company buys back its own shares from the market. This process helps reduce the number of outstanding shares, which can lead to an increase in earnings per share (EPS) and may enhance overall shareholder value. It’s akin to returning cash to shareholders and is viewed as a sign that the company believes its stock is undervalued.

Infosys has previously initiated several buybacks, with this being the fifth. In the past, they have executed buybacks of Rs 13,000 crore in 2017, Rs 8,260 crore in 2019, Rs 9,200 crore in 2021, and Rs 9,300 crore in 2022. This consistent strategy indicates a commitment to shareholder returns and a belief in the company’s long-term potential.

The rationale behind such a significant buyback, as explained by analysts, is rooted in Infosys' robust cash reserves, totaling nearly Rs 24,455 crore. Analysts believe that despite the drop in stock prices, there remains substantial value in the company, prompting this proactive measure to enhance shareholder wealth.

For shareholders, participating in the buyback can offer various tax advantages, depending on their tax brackets. The current tax policy treats proceeds from the buyback as dividends, which can be more tax-efficient for certain retail and long-term investors. Additionally, shareholders may benefit from capital loss allowances based on their holding period, which can be offset against future gains.

In conclusion, Infosys' substantial buyback not only highlights the company’s strategy to return value to its shareholders but also demonstrates its resilience in navigating market challenges. As Indian IT companies increasingly adopt buyback strategies, this move may set a precedent for future corporate actions, ultimately benefiting investors in the long run.