Infosys shares surged as much as 4.1 per cent to an intraday high of Rs. 1,014.80 on Thursday after the Bengaluru-based IT outsourcer said that its board will meet on August 19 (Saturday) to consider a share buyback proposal. “We would like to inform you pursuant to regulation………, that the board of directors (“Board”)of Infosys… will consider a proposal for buyback of equity shares of the company at its meeting to be held on August 19, 2017,” India’s second biggest outsourcer said in a release to Bombay Stock Exchange.
IT companies are under pressure to increase shareholder’s return amid slowing growth in their core business led by automation and a crackdown on visas in some countries.
A share buyback is a tax effective way to distribute accumulated cash to shareholders, thereby increasing their return on investment, analysts say. Infosys had liquid assets (cash and short term investments) of over Rs. 39,000 crore as on June 30, 2017. It has been under a lot of pressure to distribute cash to shareholders.
In the recent past, other big IT outsourcers have also announced share buybacks. TCS, India’s biggest outsourcer in May this year completed an Rs. 16,000 crore share buyback while Wipro announced an Rs. 11,000 crore share buyback last month.
However, analysts believe that share buybacks can provide a temporary fillip to the shares of a company, whereas in the long run, share prices will be driven by earnings growth of the company.
Infosys shares have underperformed the broader Nifty in this year so far. Including today’s gains, its shares are nearly flat compared to over 21 per cent gain in the broader Nifty.
As of 10.05 am, Infosys shares traded 3.86 per cent higher at Rs. 1,012.90 compared to 0.28 per cent gains in the broader Nifty.