IT majors bought back shares worth ₹19,500 crore in H1

In the largest buyback in the last 10 years, Indian IT majors have bought back shares worth ₹19,500 crore from the open market during the first half of calendar year 2017. The country’s largest IT services company Tata Consultancy Services and HCL Technologies led the pack, even as another ₹1,485-crore buyback is also in the pipeline.

The domestic IT majors bought back 6.68 crore shares between January 1 and June 30, 2017, much higher than the meagre 6 lakh shares the companies bought during the same period of last calendar year, according to data available on stock exchanges.

“In volume terms, this is the biggest buyback by the IT sector in the last 10 years. One of the reasons was the weaker market conditions during the first half of the year that made companies realise this was the right time for buybacks,” said Alex K. Babu, Managing Director at wealth management company Hedge Group.

“Obviously, these companies are also confident of their own financial performance, which is also leading to the buybacks,” he added.

So far this year, TCS bought back ₹16,000 crore worth shares and HCL Tech worth ₹3,500 crore. Wipro, which had bought back 4 crore shares worth ₹ 2,500 crore in the second half of 2016, has not bought back any shares in 2017. Interestingly, none of these IT majors bought back any shares between 2012 and 2016.

“Predominantly, IT companies have been holding on to cash for M&As. Even though their focus area is digital technologies now, with targets being either too small or too expensive, IT majors are not too aggressive on M&A. Further, buyback also improves Return On Equity and Earnings Per Share at a time of slow revenue growth,” Urmil Shah, analyst at IDBI Capital, said.

A buyback of about ₹1,485 crore is also in the pipeline this year, mainly by Mphasis, Nucleus Software Exports and Mindtree. This will take the total buyback in this year to ₹20,985 crore, according to stock exchange data.

“In the last 5-6 years, IT companies have a lot of cash on their books, which made them change their capital allocation policy. Of the three modes of capital allocation – acquisitions, buybacks or dividends – buyback have become the most preferred instrument to return cash to investors,” Amit Chandra, Research Analyst (IT) at HDFC Securities said. The high tax on dividends is making it less popular,” he added.

In April, Infosys said it will pay up to ₹13,000 crore to shareholders in this fiscal through dividend or share buyback or a combination of the two. The Bengaluru-based company had earlier adopted a new Articles of Association that included a provision for buyback.

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