Stock Buybacks in India: How They Create Shareholder Value
What is a Share Buyback?
A share buyback (repurchase) occurs when a company uses its cash to purchase its own shares from the market. The purchased shares are extinguished (cancelled), reducing total shares outstanding. This increases Earnings Per Share (EPS) and Book Value Per Share — benefiting remaining shareholders who didn’t sell.
Two Types of Buybacks in India
| Type | How It Works | SEBI Rules |
|---|---|---|
| Tender Offer (Fixed Price) | Company offers to buy shares at a fixed premium price from shareholders. You choose to tender or not. | Most common; SEBI specifies maximum premium over market price |
| Open Market Buyback | Company buys shares on NSE/BSE like any market participant over several months | Less common since SEBI tightened rules; maximum 25% of paid-up capital + reserves |
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Tax Treatment of Buybacks
Pre-October 2024 Rule
Previously, buybacks were subject to Buyback Tax (BBT) paid by the company at 20% on distributed income — shareholders received tax-free proceeds. This made buybacks tax-efficient for investors.
Post-October 2024 Rule
From October 2024, buyback proceeds are taxable in the hands of shareholders (not the company). Gains from buyback are treated as capital gains — STCG at 20% if held < 12 months, LTCG at 12.5% if held > 12 months. This brought buyback tax treatment closer to dividend tax.
Why Indian IT Companies Love Buybacks: TCS, Infosys, Wipro
Indian IT sector has been the most prolific buyback executor. TCS has conducted annual buybacks since 2017 totalling over ₹1,00,000 crore. Infosys runs annual buybacks. The rationale: excess cash (no major capex requirements), high promoter shareholding (get cash without selling shares), and EPS accretion for remaining shareholders.
| Company | Total Buyback (Approx) | Frequency | Impact on EPS |
|---|---|---|---|
| TCS | ₹1,00,000+ Cr (cumulative) | Annual (2017–present) | EPS ~5% higher per buyback |
| Infosys | ₹50,000+ Cr (cumulative) | Annual/periodic | Similar EPS accretion |
| Wipro | ₹40,000+ Cr (cumulative) | Annual | Moderate EPS accretion |
Disclaimer
The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. Lemonn (Formerly known as NU Investors Technologies Pvt. Ltd) do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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