Infosys share buyback: Should you sell or hold? Strategies & opportunities

Infosys has announced that the buyback—its fifth and largest to date—will be executed via the tender offer route, under which shares are repurchased at a fixed price. The company has set the buyback price at Rs 1,800 per share, a 17 per cent premium to Thursday’s closing price. 

With Friday marking the record date for Infosys’ Rs 18,000 crore share buyback, shareholders have formally secured eligibility for participation. While no action is required on the record date itself, investor attention now turns to the road ahead. 

Market expert Avinash Gorakshakar believes this increases the chances of the public shareholders securing a better return once tendering begins. If the acceptance ratio is roughly about 40-45 per cent, Then there is a good chance for investors to make money. 

He calls the move a good positive development, adding that returning excess cash to shareholders is preferable to letting it sit idle without generating a meaningful return.

The latest tax rules add a crucial layer of complexity to this buyback. Under the revised framework, the amount received from tendered shares is deemed as dividend and will be taxed at an individual's application of the income tax slab. Infosys will deduct TDS at 10 per cent for resident shareholders and 20 per cent for non-resident investors.

This makes the net outcome less lucrative for higher-income earners. For people who have got more than 12 lakhs income, Gorakshakar points out that taxation limits the final return, meaning the post-tax returns are definitely not very aggressive. While he notes that it is not a bad deal from a liquidity perspective, it is not a very aggressive deal after factoring in the tax outgo.

Yet, the new regime opens the door for a lesser-known tax strategy. Since the sales consideration for shares tender in the buyback is actually considered zero, investors technically incur a capital loss. Gorakshakar emphasises that this will actually be very helpful for people who have got a large capital gain. Shareholders can then use this loss to adjust... against that capital gain in the entire portfolio, lowering their total tax liability for the year.

The tendering process is simple: eligible shareholders can log into their broker’s platform, navigate to the corporate actions section, and submit their shares. However, not every tendered share will be accepted, given that Infosys is buying back only 2.4 per cent of its outstanding shares. The acceptance ratio will determine how many shares ultimately get repurchased, with the remaining shares credited back to the shareholder’s demat account.

The choice between participating in the buyback or staying invested ultimately hinges on an investor’s outlook and cash needs. According to Gorakshakar, the buyback is a good short-term liquidity... boost for those looking to want to liquidate and churn their portfolio. 

For such investors, the opportunity to earn at least 250-260 rupees per share in the near term could be compelling, especially since the stock does not immediately gear up post-buyback and typically consolidates for a long period of time.

Long-term investors, however, may prefer to ride out the volatility. Gorakshakar said that Infosys is now a kind of a compounder stock that can deliver annualized basis if you get 10-12 per cent, that should be considered as a very normal return. Still, he concedes that if you get 15-16 per cent from the buyback in a very short period of time, that definitely looks attractive vis-à-vis the medium to long-term kind of range.