Infosys will open its ₹18,000-crore share buyback window on 20 November, with the offer closing on 26 November. This is the company’s largest buyback to date, priced at ₹1,800 per share, a premium to current market levels. The last buyback was in 2022, valued at ₹9,300 crore.
The stock has reacted positively, rising nearly 4 per cent to around ₹1,541, making it the top performer on the Nifty IT index.
Understanding the Buyback
A share buyback is a corporate action in which a company repurchases its own shares from existing shareholders. This reduces the number of outstanding shares, supports earnings per share (EPS), and typically improves return ratios such as ROE.
Infosys plans to repurchase 10 crore equity shares, representing about 2.41% of its paid-up equity capital. The offer is structured across two investor categories:
1. Small shareholders (reserved category)
- Investors holding shares worth up to ₹2 lakh on the record date (14 November)
- Reservation: 15% of buyback quantity or higher based on entitlement
- Buyback ratio: 2 shares for every 11 held
- Over 25.8 lakh small shareholders qualify
2. General category
- Buyback ratio: 17 shares for every 706 held
The entitlement ratio reflects how many shares investors are allowed to tender relative to their holdings.
Why Retail Investors Should View This Positively
The strongest signal comes from the promoters opting out of the buyback.
Promoter and promoter group holdings stand at about 14.3%, with the remaining 85% held by the public. Their decision not to tender shares has two implications:
1. Higher acceptance ratio for public shareholders
With promoters staying out, their quota effectively expands the pool available to retail investors, improving the likelihood of tendered shares being accepted.
2. Confidence in long-term fundamentals
Promoters retaining their stake often indicates belief in the company’s future prospects, reducing concerns that insiders are exiting at elevated prices.
Additionally, the IT sector has seen improved sentiment recently, and this announcement supports that momentum.
Tax Considerations for Investors
This is where decision-making becomes nuanced.
From October 2024, buyback proceeds are treated as dividend income and taxed at the shareholder’s applicable slab rate. This shifts the economics:
- High-tax-bracket investors (30% plus surcharge):
Net benefit from the buyback premium reduces significantly. In many cases, selling in the market closer to the buyback price may be more efficient. - Low-tax or tax-exempt investors:
The buyback remains attractive if the acceptance ratio – especially in the small shareholder category – is favorable.
Investors must therefore assess the post-tax payoff, not just the headline premium.
Company Fundamentals and Impact on Long-Term Holders
Infosys is funding the buyback entirely from internal cash reserves, reflecting strong free cash flow generation and balance sheet quality. While the company is currently navigating a moderate growth phase:
- Deal flow remains steady but not high growth
- Margins have stabilized but are not expanding significantly
- Broader IT sector demand continues to be cyclical
Reducing share count through the buyback supports EPS and ROE, offering long-term benefits for investors who choose not to tender.
Bottom Line for Retail Investors
- Promoters not participating increases the effective acceptance ratio
- Buyback price premium offers a potential near-term gain
- Taxation at slab rates is a key variable in deciding whether to tender
- Long-term holders benefit from improved capital efficiency even if they don’t participate
For retail investors – particularly those in lower tax brackets – the offer can deliver meaningful upside. For high-bracket investors, evaluating the net-of-tax return versus selling in the market is essential.