Infosys Buyback Analysis: Modest Returns Despite High Premium

Infosys Limited, one of India's leading IT services and consulting giants, has announced a ₹18,000-crore share buyback via the tender offer route. The buyback is priced at ₹1,800 per share, offering a ~20% premium over the current market price (CMP) of ~₹1,500. The buyback program will cover up to 10 Crore shares (2.41% of equity), with 15% reserved for retail investors. The record date for eligibility is yet to be announced, giving investors a window to build positions if they choose. 

The buyback aims to:

• Efficiently deploy Infosys’ surplus cash.
  
  
• Enhance shareholder value.
  
  
• Reduce the outstanding equity base.
  
  

Retail Investor Impact

For small investors, the actual return depends heavily on the acceptance ratio-the percentage of shares tendered that the company accepts.

Based on illustrative cases (buying 110 shares at ₹1,500 each):

• 10% acceptance > Gross ROI ~2%
  
  
• 20% acceptance > Gross ROI ~4%
  
  
• 30% acceptance > Gross ROI ~6%
  
  
• 40% acceptance > Gross ROI ~7%
  
  

While the tender premium is 20%, the effective upside remains modest because only a portion of shares are likely to be accepted. Moreover, TDS (Tax Deducted at Source) and slab-wise income tax will further reduce net returns.

Why ROI Looks Modest

1. High Premium, Low Acceptance: Although Infosys has offered a generous 20% premium, acceptance ratios in large-cap buybacks tend to be limited.
   
   
2. Taxation Impact: Post-TDS and income tax, the effective net return could be significantly lower than the headline ROI.
   
   
3. Opportunity Cost: Investors locking in capital may miss better opportunities in IPOs or high-growth mid-cap/sectoral plays.
   
   

Should Investors Participate?

While the buyback offers a short-term arbitrage opportunity, the limited upside and tax adjustments make it less attractive. The effective gains are too small relative to the effort and capital deployed.

Instead, investors may be better off exploring upcoming IPOs, other high-growth companies, or sector-specific opportunities that provide a stronger risk-reward profile.

Final Takeaway

The Infosys buyback is a safe but low-return play. Retail investors should carefully weigh the modest ROI against taxes and opportunity costs before participating. For long-term wealth creation, redeploying capital into growth opportunities may deliver better results.