Much to the interest of markets and investors, Infosys will consider a buyback plan at its meeting on Wednesday, alongside its March quarter earnings.
The IT giant had last Sunday announced that the outcome of the board meeting will be disseminated to the stock exchanges after conclusion of the board meeting
Buyback refers to the repurchasing of free-float shares of a company by the promoters. In a buyback issue, the company pays its shareholders a fixed value per share and re-absorbs that portion of its ownership previously distributed among public and private investors.
The process enables the repurchase of shares from shareholders, usually at a higher price than the market price.
Companies go for buybacks for various reasons such as ownership consolidation plan, undervalued price or for boosting its key financial ratios, making companies look more healthy financially.
According to a report by Economic Times, Nomura India said it was expecting the company to consider an open market buyback, similar to the one done in 2019.
“We expect Infosys to announce a buyback in the range of $1.3-$1.9 billion at a maximum price of Rs 1,650, equivalent to 1.5-2 per cent of the outstanding equity. We reiterate Infosys as our top pick in the Tier-1 IT space with a target price of Rs 1,620," the brokerage told ET.
So far, Infosys has a capital allocation policy to return 85 per cent of its free cash flow (FCF) over a block of five years through a combination of dividends and buyback.
In August 2019, Infosys had bought back 11.05 crore of its shares under its Rs 8,260-crore buyback offer.
Infosys had completed its maiden buyback of Rs 13,000 crore in December 2017, comprising 11.3 crore equity shares at a price of Rs 1,150 per share.
Infosys share price touched 52-week high of Rs 1,48, rising over 2 percent in the early trade on Monday.
The corporate earnings for the fourth quarter of fiscal 2021 are all set to begin with the IT companies kicking in the season. In the last two consecutive quarters, companies have beaten street expectations and earnings estimates have been raised.
Analysts expect companies to report strong results again this quarter. During the quarter ended March 2021, the Nifty IT index has outperformed the benchmark Nifty and experts believe this outperformance to continue in the medium term. Strong demand environment, large deal wins, continued traction in digital and cloud, ramp-up of large deals and demand recovery in highly impacted verticals like travel, hospitality were the highlights of the quarter gone by for the Indian IT companies.