Mumbai: Share buybacks by Indian companies, led by software services firms, are set to climb to a record this financial year. Just over five months into this financial year, at least 20 firms have offered to buy back shares worth at least Rs48,000 crore, data shows.
This compares to share repurchases worth Rs34,468 crore announced by 45 firms in the previous year, data from Prime database shows.
The Rs48,000 crore worth of share buybacks this fiscal includes offers from Wipro Ltd and Infosys Ltd, which have announced a buyback of shares worth Rs11,000 crore and Rs13,000 crore, respectively, but are yet to execute them.
The rush to return money to investors shows Indian firms either do not have too many avenues to deploy the cash or lack confidence in the business climate, said analysts.
IT firms account for at least Rs40,000 crore of the buybacks announced this fiscal.
“IT firms are offering buybacks this year due to lack of options for acquisitions and historic low valuation of their share prices. These companies are facing major slowdown and have accumulated high cash in their books; so share buyback is a healthy way of rewarding shareholders," said Dhiraj Sachdev, senior vice-president and fund manager, equities, at HSBC Global Asset Management.
Buybacks are considered a more efficient way of returning surplus cash since companies don’t have to pay dividend distribution tax. “These IT firms are sitting on huge cash, which they are investing in artificial intelligence research and analytics; still it’s a minuscule portion of the money they own," Sachdev added.
The BSE IT index has underperformed benchmark indices in 2017. So far this year, BSE IT is down 1%, while the Sensex and the Nifty are up around 18-20%.
Secondly, share buybacks will also improve financial valuation parameters of the IT firms as they are going through a rough phase of business growth due to factors such as falling software exports, pricing issues and the appreciation of the rupee.