Share Buyback 2026: Understanding Basics, Benefits, and Reasons for Share Buyback

If you plan to invest in the stock market, knowing the various corporate actions that companies can initiate is very important. One of the many actions that could potentially have a major impact on investors is a share buyback. It is where a company repurchases its own shares from existing shareholders or the open market. 

Understanding share buybacks is crucial as they directly impact stock prices, earnings per share, and shareholder returns. This comprehensive guide covers the basics, share buyback benefits, and the reasons why a company might resort to it.

What is a Share Buyback?

A share buyback is a corporate action where a listed company repurchases its shares from its own investors. This action reduces the number of outstanding shares in circulation, concentrates ownership, and increases share prices. 

Types of Share Buybacks in India

Now that you have a good idea of what a share buyback is, let us explore the two different types of this corporate action. 

1. Open Market Buyback

In an open market buyback, companies repurchase their shares directly from stock exchanges at the current market prices. This particular method offers flexibility in timing and pricing as it allows companies to buy back shares gradually over an extended period.

2. Tender Offer or Fixed Price Buyback

Under a tender offer or a fixed price buyback, companies invite shareholders to sell their shares back to the company at a predetermined fixed price. This price is usually at a premium to the current market value. Interested shareholders can either choose to sell their shares at the specified price or hold onto their investments.

Regulatory Framework

Share buybacks in India are governed by the Companies Act, 2013, and SEBI (Buy-Back of Securities) Regulations, 2018. The regulatory frameworks specifically require companies to follow certain rules. These include maintaining specific debt-equity ratios, using only free reserves for buybacks, and ensuring the buyback does not exceed 25% of the total paid-up capital and free reserves.

Share Buyback Benefits

As an investor, it is not enough to just know what a share buyback is. You should also be aware of the advantages it offers to both companies and their shareholders.

Benefits for the Company

Companies undertake buybacks as a strategic financial decision. Here are some of the key share buyback benefits for the company. 

• Improve EPS 

Share buybacks reduce the number of outstanding shares. This automatically increases the earnings per share (EPS) even if absolute profits remain constant. The improved EPS metric makes the company appear more profitable and can attract new investors, potentially driving stock prices higher.

• Efficient Use of Surplus Cash

When companies have excess cash reserves and limited investment opportunities, they can opt for a share buyback. It allows them to provide some value to shareholders while maintaining financial flexibility.

• Boost Investor Confidence

A buyback announcement indicates that management believes the shares are undervalued. This positive signal usually provides reassurance and confidence to investors about the company's financial health, stability, and commitment to shareholder value creation.

Benefits for Shareholders

Shareholders enjoy multiple advantages when companies execute buyback programs. Let us closely examine the share buyback benefits for shareholders. 

• Opportunity to Sell at a Premium

In tender offer buybacks, companies typically offer a price above the current market rate. This allows shareholders to exit at a good profit.

• Increase in Stock Value

Buybacks reduce the supply of shares available in the market, which can drive up stock prices. Additionally, shareholders who do not participate in buybacks benefit from increased ownership percentage without additional investment.

• Tax Efficiency

As of April 1, 2026, profits from share buybacks are treated as capital gains instead of dividends. Depending on the holding period, the gains are classified as either short-term or long-term and taxed accordingly. This change is likely to reduce the tax liability of investors as they only have to pay tax on the profit and not on the entire buyback proceeds. 

Pre- and Post-Buyback Impact Comparison

Now that you have seen share buyback benefits, let us quickly compare the before and after impact of this corporate action.  

Reasons for Share Buyback

Wondering why a company might resort to this corporate action? Here are six key reasons for share buybacks. 

1. When companies lack profitable investment opportunities or expansion plans, share buybacks prevent cash from sitting idle and ensure capital is returned to shareholders productively.
2. Buybacks allow companies to reward shareholders without committing to higher permanent dividend obligations or financial expectations.
3. Repurchasing shares signals confidence in the company's prospects, which could potentially trigger positive market sentiment and boost stock prices through improved demand.
4. Reducing the number of outstanding shares improves earnings per share (EPS) and return on equity (ROE) ratios. This makes the company more attractive to investors and analysts evaluating performance metrics.
5. Buybacks concentrate ownership, which makes it harder for hostile entities to acquire controlling stakes. They help promoters maintain strategic control over their companies.

Recent Indian Company Buyback Examples

In November 2025, Infosys Limited completed a massive Rs. 18,000 crore tender offer share buyback. The company repurchased 10 crore equity shares (2.41% of the total number of equity shares) at Rs. 1,800 per share. 

More recently, Matrimony.com Limited also completed a Rs. 58.50 crore tender offer share buyback in February 2026. Through the offer, the company repurchased 8,93,129 equity shares (4.14% of the total number of equity shares) at Rs. 655 per share. 

Impact of Share Buyback on Shareholders

Now that you have seen the reasons for share buybacks, let us explore the impact it has on shareholders. Understanding its effect can help you navigate offers strategically. 

• Short-Term vs. Long-Term Benefits

Short-term share buyback benefits include immediate premium pricing and quick liquidity in tender offers. Meanwhile, long-term benefits include sustained EPS growth, improved valuations, and enhanced ownership stakes for remaining shareholders.

• Effect on Shareholding Pattern, Market Price, and Liquidity

Buybacks increase proportionate ownership for non-participating shareholders. They also boost market prices through reduced supply. However, this may reduce stock liquidity as fewer shares are available for trading.

• How Retail Investors Can Evaluate Participation?

Investors should compare share buyback price premiums against long-term growth potential. By assessing company fundamentals, future prospects, tax implications, and personal liquidity needs, investors can make a decision on whether it would be profitable to participate in the tender offer or not.

How Share Buybacks Are Executed in India?

Understanding the reasons for share buybacks is important. Similarly, knowing how it is executed is equally crucial.  

Regulatory Framework Under SEBI Buyback Regulations

The SEBI (Buy-Back of Securities) Regulations, 2018, govern all share buyback procedures. It deals with board and shareholder approvals, financial eligibility criteria, maximum buyback limits, and strict compliance with disclosure norms to ensure fair treatment of all shareholders.

Open Market vs. Tender Offer Process

Open market buybacks involve purchasing shares directly from stock exchanges at market prices over an extended period. Meanwhile, in tender offers, companies set a fixed price over and above the current market price and invite shareholders to sell their shares within a specified timeframe. In India, tender offer share buybacks are more common. 

Timeline and Disclosure Requirements

Companies must announce their share buyback intentions publicly, obtain necessary approvals within stipulated periods, and complete the entire buyback within six months (for open market process) or twelve months (for tender offers). Furthermore, the companies must regularly disclose the progress through stock exchange filings and public announcements.

Key Takeaways or Tips for Investors

Here are some essential tips to help investors maximize benefits and minimise risks when companies announce buyback programs.

• Compare the offered buyback price with current market rates to determine if the premium justifies participation.
• Review balance sheets, debt levels, cash reserves, and profitability to ensure the buyback program does not compromise the company's operational stability.
• Get to know the tax implications of share buyback gains. If the buyback is announced before April 01, 2026, then the gains are classified as dividends and added to your total income.  If the buyback is announced after April 01, 2026, they will be classified as capital gains, which is likely to be more tax-efficient.
• Analyse whether the reduced share count will sustainably improve earnings metrics or if funds could yield better returns through business expansion.

FAQs

• What is a share buyback, and how does it work?

A share buyback is when a company repurchases its shares from its own shareholders. It reduces the number of outstanding shares and concentrates ownership. A share buyback is executed either through open market purchases or tender offers at a fixed price above the current market price.

• Why do companies buy back shares?

Companies buy back shares to utilise excess cash efficiently, improve financial ratios like EPS, return capital to shareholders, and sometimes to defend against hostile takeovers.

• How do shareholders benefit from buybacks?

Shareholders can sell at a price higher than the current market price in the case of a tender offer. They also get to enjoy increased ownership without additional investment, benefit from potential stock price appreciation, and experience improved per-share earnings.

• Is a share buyback better than dividends?

Both have their own set of advantages. Buybacks offer flexibility and potential tax efficiency, whereas dividends provide regular income. The better option depends on individual investor needs, tax situations, and the company's long-term strategy.

Conclusion

With this, you must now be aware of what a share buyback is and its various benefits. It is a powerful corporate action that benefits both companies and shareholders by improving financial metrics and enhancing stock value. Understanding the mechanics and the reasons for share buybacks helps investors make informed participation decisions. Want to stay ahead of investment opportunities? Use Samco’s comprehensive tools and real-time alerts to track upcoming share buybacks and corporate actions.