Stock Market News: Infosys likely to buyback shares

Finogyan December 24, 2018
Stock Market News: Shares buyback or repurchase has become common these days. On 11th January there is an Infosys board meeting where the members are likely to take a decision of Infosys Share Buyback offer for the investor. The decision has come after one year cooling period of the previous buyback which is going to end in the month of Dec 2018.

Sources said that $1.6 billion Infosys share buyback could happen at 20-25% premium of current market rate and the decision is likely to take on 11th January while declaring the third quarterly result in the board meeting.

Last Friday Infosys was closed at Rs 646 per share and after the news Monday morning it opened gap up at Rs 657 per share almost 1 percent up. Now the question is would you participate this time for the Infosys share buyback, would you buy Infosys share at current market price (CMP). Let us first discuss what is share buyback or repurchase and what are its advantages and disadvantages.



Infosys share buyback
Infosys Share Buyback

What is Share Buyback or Repurchase


Shares Buyback or Repurchasing occurs when an issuing company pays the shareholders at the rate decided to buyback ( including premium) and take back the ownership of Shares/stocks distributed earlier to the public or privately. The buyback of shares is done on a proportionate basis. A company cannot borrow any fund from banks or financial institution for buyback of shares/stocks. Buyback can only be done through Free Reserve or Securities Premium Account.

The advantages of Shares Buyback are:



  1. The companies offering Buyback to investors can effectively utilize the underutilized fund like free reserve and reduce the cost of equity by saving less dividend payout.
  2. The announcement of shares buyback signals the strong management of the company. It implies company have strong cash flow and are confident in positive development in the future.
  3. Investors typically see a buyback of shares a positive sign for appreciation in the future, as a result, shares buy can lead to a rush of investors for buying of stocks/shares which may increase the price.
  4. Buying back of shares can also be an easy way to look at the business more attractive by reducing the number of shareholders to the company and increasing the EPS ratio.


The Disadvantage of Shares Buyback are



  1. The main disadvantage of Shares Buyback is the cash used by the company to repurchase of shares. As per investors point of view, a company can utilize the fund for further development of the company instead the company is overlooking the development and reducing the shareholders.
  2. As per investors point of view, share Buyback means there is no profitable opportunity for the company and so it creates a negative image for the company.

You may also like our article: The Best Smart Investment Plan for 2018: Stocks, Mutual Funds, Gold, Currency

Conclusion:


Last time Infosys share buyback decision was announced on 9th October 2017 while declaring the second quarterly result in the board meeting. The Infosys share price was around Rs 460 at that time which has increased to Rs 657 today after a gap of one year. Now you can only decide whether to go ahead with the Infosys share buyback or not.

It is not always that if the company is announcing a buyback of share, the price will increase. Last year Unichem Lab also announced a share buyback, the price of the shares went up to Rs 372 from Rs 325 but after the record date, it started falling continuously and now the price is Rs 194.

Our view is, Infosys is a fundamentally sound company, investors should buy Infosys share at this price to get a profit of around 15% in three months time.  
   



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Happy Investing !!!

Finogyan Team


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