Mohandas Pai lauds SEBI’s proposal to revive open market share buybacks

Former Infosys CFO and Aarin Capital Chairman TV Mohandas Pai has strongly welcomed the Securities and Exchange Board of India’s (SEBI) proposal to reintroduce open market share buybacks through stock exchanges, calling it a “fantastic move” at a time when equity markets are facing sustained pressure.

Speaking on the development, Pai highlighted that Indian markets have been impacted by persistent selling, particularly amid geopolitical uncertainties and foreign institutional investor (FPI) outflows. “The market has been battered… retail investors who invested through SIPs are seeing their valuations decline,” he told Moneycontrol, adding that cash-rich corporates can play a stabilising role by deploying surplus capital via buybacks.

Policy shift 

SEBI’s proposal marks a significant regulatory shift after the open market buyback route was discontinued in April 2025 due to concerns around taxation and equitable participation. The regulator has now revisited the framework following changes in tax rules, which have addressed earlier distortions.

Under the revised Income Tax provisions, buyback proceeds will now be taxed as capital gains in the hands of shareholders. This aligns buybacks with regular market transactions and eliminates the earlier disparity, where companies bore the tax burden while participating shareholders were effectively tax-exempt.

SEBI, in its consultation paper, has proposed allowing companies to repurchase shares directly from the secondary market as an additional route alongside the existing tender offer mechanism. The regulator has invited public comments on the proposal until April 23, 2026.

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Market impact and liquidity boost

Pai emphasised that reintroducing the open market route could provide much-needed support to stock prices, especially during periods of market stress. With corporates sitting on substantial cash reserves, buybacks can enhance capital allocation efficiency while boosting investor confidence.

Importantly, the move is also expected to revive primary markets. Pai noted that improved market sentiment and price stability could create favourable conditions for initial public offerings (IPOs), which have seen subdued activity in recent months.

SEBI also pointed out that open market buybacks are widely used globally and contribute to continuous price discovery and improved liquidity. The order-driven system ensures transparency through price-time matching, offering equal opportunity to all public shareholders.

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Past concerns

The earlier discontinuation of this route stemmed from concerns that buybacks via exchanges allowed disproportionate participation by a few shareholders, potentially disadvantaging others. Additionally, the previous tax structure created unequal outcomes between participating and non-participating investors.

However, with taxation now shifted to shareholders and a stricter regulatory framework likely to be implemented, SEBI aims to balance flexibility with fairness.

Outlook now

The proposal follows representations from industry bodies such as FICCI and the Association of Investment Bankers of India (AIBI), which had urged the regulator to restore the open market mechanism. Pai himself had earlier advocated for the move, arguing that restricting companies to the tender route limited their ability to efficiently return capital to shareholders.

If implemented, the revival of open market buybacks could mark a pivotal step in strengthening India’s capital markets by enhancing liquidity, supporting valuations, and restoring investor confidence amid volatile global conditions.

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