Infosys stated late Monday that its board of directors would examine a proposal to buy back shares on Thursday. This news, however, did nothing to cheer investors, who stayed on the sell side.
On Tuesday, Infosys’ share price fell 2.7% to Rs 1,423.80. In recent months, IT equities have been pushed down by macroeconomic concerns and erratic fluctuations in US bond yields. With mounting fears about a downturn in the IT services industry’s primary export markets, investment options for development are limited, requiring corporations to find new ways to reward shareholders.
“As sales growth expectations have tempered as clients have become more cautious,” brokerage company YES Securities stated.
At the conclusion of the June quarter, Infosys’ cash and equivalents were Rs 13,982 crores. Over a five-year period, Infosys NSE 0.92% has a policy of returning around 85% of its free cash flow to investors through dividends and share buybacks.
Infosys spent between Rs 8,000 and 9,000 crores on its last two share buybacks, and some experts believe the amount may be higher this time. According to IIFL Securities NSE 0.15%, the IT major could announce a Rs 11,000-12,000 crore buyback.
Even though IT equities have been declining in comparison to competitor Tata Consultancy Services NSE 0.82%, Infosys shares have performed better in the recent quarter. In the September quarter, Infy shares fell more than 3%, while TCS NSE 0.82% fell more than 9%.
Analysts feel that the buyback could provide support and enable Infosys shares to sail NSE -0.25% past the market’s expected turmoil. Another reason the market is unaffected by the news is that investors are unaware of the mechanism of the buyback that the corporation will use.
Since its first public offering in 1993, Infosys has executed three share buybacks, the latter two of which were done on the open market. Companies benefit from share repurchases done on the open market because they can purchase them at market value. However, the tender offer mechanism is more advantageous for shareholders because buybacks through this channel must be done at a premium.
Infosys took at least five months to execute the last two open market buybacks. As a result, the Street is in a holding pattern, and shifting the tide depends on how effectively Infosys rewards stakeholders.
Infosys Limited is a multinational Indian information technology organization focused on business consulting, information technology, and outsourcing. The company was founded in Pune and is headquartered in Bangalore. According to the Forbes Global 2000 ranking, Infosys is the second-largest Indian IT business in terms of revenue after Tata Consultancy Services in 2020, and the world’s 602nd largest public company.
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