TCS announces the repurchase of shares of 18,000 cr. What this means for investors
Tata Consultancy Services (TCS) announced on Wednesday that its board of directors has approved the repurchase of shares worth up to ??18,000 crore, according to a swap record.
“The Board of Directors, at its meeting held, approved a proposal to buy back a maximum of 4,000,000,000 shares of the company for a total amount not exceeding ??18,000 crore or 1.08% of the total paid-up share capital at 4,500 per share subject to shareholder approval, ”TCS said in a filing.
The repurchase will be executed with a premium of ??643 of the current share price.
This is TCS’s fourth buyout since 2017 and the first for any company in the current calendar year. The company has approved share buybacks worth ??16,000 crore each in 2017, 2018 and 2020.
On Wednesday, ahead of results, the TCS script closed down 1.50% at ??3,857 each on NSE. Over the past year, stocks have jumped 21.37%, underperforming the Nifty IT Index which gained 25.02% over the same period.
What is a share buyback and what it means for investors
Share buyback, or stock buyback, occurs when a company buys back its own shares from investors or stakeholders. This can be seen as an alternative and tax-efficient way to return money to shareholders.
Redemptions are fiscally attractive even after taking into account the 10% tax on long-term capital gains (LTCG).
Usually, companies opt to buy back shares if they want to increase demand in the market. Share buybacks reduce the number of shares outstanding, which can increase share value and earnings per share (EPS).
When a company repurchases shares, the result is a reduction in the number of shares in circulation and in the capital base. To this extent, it improves the company’s BPA and ROE. As EPS rises, assuming the P / E remains constant, the stock price should rise as well.
Usually Indian IT companies like Infosys, TCS, Wipro and HCL Tech have a lot of money and it comes at a cost. Therefore, it is better if the money comes back to the shareholders through a buyout.
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