Hey there, folks! It’s that time of the year again when Tata Consultancy Services (TCS) is gearing up to make some big moves. You heard it right, TCS, the Indian IT giant, is all set for its fifth share buyback in six years. That’s some exciting news, and in this article, we’ll dive into the nitty-gritty details of this mega event.
What’s a Buyback, Anyway?
Let’s start with the basics. A share buyback is when a company purchases its own shares from shareholders. It’s like a company saying, “Hey, we believe in our business, and we want to reward our investors by buying back some of our stock.” Typically, this happens at a premium to the current market price, which means shareholders have the option to cash in and make a profit.
TCS’s Buyback Journey So Far
Before we jump into the 2023 buyback, let’s take a quick trip down memory lane. TCS began its buyback journey back in 2017. They announced a buyback worth a whopping Rs 16,000 crore, with an 18 percent premium. And that’s just the beginning.
In 2018 and 2020, TCS went big again with buybacks of Rs 16,000 crore each. The premium was 18 percent and 10 percent, respectively. Fast forward to 2022, and TCS was in the mood for another buyback, this time worth Rs 18,000 crore, at a premium of 17 percent. The company’s total buyback tally reached an impressive Rs 66,000 crore in just six years.
Stock Price and Buybacks
You might be wondering, “Does a buyback mean the stock will skyrocket?” Well, not necessarily. The stock price doesn’t always follow the script. It took some time for TCS’s stock price to catch up after previous buybacks. For instance, after the 2017 buyback, it took 228 sessions (that’s nearly a year!) for the stock price to surpass the buyback price. The following buybacks in 2018 and 2020 took 69 and 61 sessions, respectively, to align with the buyback price.
But here’s the twist: TCS’s stock is yet to reach the 2022 buyback price of Rs 4,500. It hit an all-time high just days after the announcement, but then took a downhill slide. So, a buyback isn’t a guaranteed one-way ticket to stock market stardom. Morgan Stanley, in its analysis, points this out too.
The 2023 Buyback: What’s in Store?
Now, let’s talk about the main event—the 2023 buyback. As of June 30, 2023, TCS had Rs 7,123 crore in cash and cash equivalents on its balance sheet. Given its track record of raking in more than Rs 10,000 crore in cash per quarter, it’s safe to say that number’s going up.
So, how much are we looking at for the 2023 buyback? Well, if we read the trends and market expectations, it’s likely to be around Rs 18,000 crore. That’s exciting, but the real suspense lies in the premium. The previous buyback price was Rs 4,500, which is a whopping 24 percent higher than the current price.
JP Morgan expects the buyback size to be around Rs 18,000 crore, while Morgan Stanley predicts a range between Rs 18,000 and 22,500 crore. IIFL also joins the speculation party, estimating it to be between Rs 18,000 and 20,000 crore.
The Domino Effect: Other IT Giants
Here’s the deal: TCS isn’t the only one making these moves. When TCS buys back its shares, it often triggers similar announcements from other big IT players like Infosys and Wipro. It’s like a domino effect in the IT world.
For example, Wipro has bought back shares worth a staggering Rs 45,499 crore from shareholders over the past seven years. Likewise, Infosys didn’t stay behind, repurchasing Rs 39,760 crore worth of shares in the last six years.
Investors are keeping their fingers crossed, hoping for these tech giants to follow TCS’s lead and announce their own buybacks soon.
Tax-Friendly Rewards
One of the perks of a buyback, from an investor’s perspective, is its tax efficiency. When you tender your shares during a buyback, you can enjoy tax-free profits. Compare that to selling your shares in the open market, where you might have to share your earnings with the taxman.
Promoter groups also love buybacks for this very reason. On the flip side, dividends are taxed in the hands of investors according to their respective income brackets, which can get pretty hefty for high earners.
So there you have it, folks! The world of buybacks isn’t just about cash; it’s about strategy and confidence. TCS’s 2023 buyback is the talk of the town, and we’re eagerly waiting to see how it all plays out. Remember, when it comes to stock markets, there are no guarantees, but that’s what makes it all so exciting.
And, as always, a quick reminder: The views and investment tips expressed by experts are their own, so make sure to consult with certified experts before making any investment decisions. Your financial future is too important to leave to chance!
