After IT majors Cognizant and TCS' decision to buy back shares, software giant Infosys could be following suit, according to reports. The Economic Times reported, citing sources, that Infosys could be announcing a share buy back of $2.5 billion in April.
The report further stated that Infosys founders are on-board with the decision. At present, the founders hold 13 per cent in the firm and are classified as promoters.
If Infosys decides to go for share buyback, it will be the first time in their history. In a share buyback a company offers to purchase shares from the shareholder which reduces the equity base of the company.
The primary objective of a share buyback programme is to arrest the fall in the value of a stock by reducing the supply of the stock, which essentially pushes up the share price through a better P/E multiple. The other objective is to improve earnings per share (since the same dividend amount is now distributed among fewer shares).
Former Infosys CFO TV Mohandas Pai had earlier said "I hope that Infosys follows suit and announces share buyback." "If Cognizant and TCS can buyback shares, why not Infosys?" he added.
After Cognizant announced share buy back of $5 billion there was a clamour for Indian IT majors TCS, Infosys, Wipro and HCL Technologies to liquidate their cash hoard through a share buyback programme.
The board members of TCS soon approved a proposal to buyback up to 5.61 per cent equity shares at a price not exceeding Rs 2,850, aggregating Rs 16,000 crore.
In a filing to BSE the company said the board members have approved buyback of "5,61,40,351 equity shares for an aggregate amount not exceeding Rs 16,000 crore (hereinafter referred to as the "Buyback Size") being 2.85 per cent of the total paid up equity share capital, at Rs. 2,850"
"The buyback is proposed to be made from the shareholders of the company on a proportionate basis under the tender offer route using the stock exchange mechanism in accordance with the provisions contained in the SEBI (Buy Back of Securities) Regulations, 1998 and the Companies Act, 2013 and rules made thereunder," the company said.
The announcement comes at a time when some Indian IT companies are caught in controversies regarding shareholders' concerns.