What is Share Buyback?Share buyback or stock buyback is when companies buy back their own shares from shareholders including retail investors, promotors, institutional investors and foreign institutional investors. Share buyback is covered under section 68 of the Companies Act, 2013.
Why do Companies Initiate Share Buyback?Companies initiate share buybacks to avoid holding excessive cash reserves. Excess cash doesn't look good on a balance sheet for a simple reason: Investors invest their hard-earned money in a company so that it can be used productively to earn high returns. If the company starts to retain surplus cash instead of investing in new projects, then that money is better off with a bank that too at zero risk! Therefore, instead of sitting idly on cash, companies prefer to either distribute it in the form of dividends or initiate share buyback. But a share buyback is not always positive. In some cases companies announce share buyback to simply manipulate the stock prices. Some common reasons for share buyback include:
- Excessive cash reserves with the company.
- No substantial new long-term projects or avenues for deploying surplus cash.
- Raising promoter holding % in the company.
- Manipulating stock prices.
- Inflating ‘return on asset’ ratios and key company ratios
Methods of Share BuybackCompanies can initiate share buyback via 2 methods:
- Tender Offer Share Buyback
- Open Market Share Buyback
Share Buybacks in 2020: Find the list of latest share buybacks in India in 2020.
|Company||Buyback Type||Buyback Price||Record Date|
|TCS||Tender Offer||Rs 3,000||28.11.2020|
|Wipro Ltd||Tender Offer||Rs 400||11.12.2020|
|NMDC Limited||Tender Offer||Rs 105||23.11.2020|
|NTPC Ltd||Tender Offer||Rs 115||13.11.2020|
|Ajanta Pharma Ltd||Tender Offer||Rs 1,850||13.11.2020|