As of August 2024, 11 businesses have collectively repurchased shares worth Rs 5,388 crore, flooding the stock exchanges with buyback activity. According to statistics from Prime Database, the amount of shares (in rupee terms) purchased back is the largest in 14 months.
Two businesses, including Wipro (which paid Rs 12,000 crore), repurchased shares in June 2023 for a total of Rs 12,005 crore. The share buyback amount this month is the highest since December 2022, when nine companies bought back shares. Excluding the buybacks of Rs 10,000 crore by Wipro, Larsen & Toubro in September 2023 and Rs 17,000 crore and Rs 18,000 crore by TCS in December 2023 and March 2022, respectively, the amount of shares repurchased this month is the highest since December 2022, when nine companies repurchased shares valued at Rs 10,606 crore, according to data.
Analysts predicted that a substantial increase in the share repurchase quantum would result from major modifications to India's share buyback tax system, which will take effect on October 1, 2024. The new regulations in the July 2024 Union Budget would transfer the tax burden from corporations to shareholders, so changing the buyback strategy landscape.
Currently, corporations that engage in buybacks are required to pay repurchase tax, which amounts to over 20 percent. However, there is no tax associated with shareholders tendering their shares
However, under the new arrangement, which takes effect in October 2024, investors would be taxed as dividends on the whole amount received on share buybacks in accordance with their respective tax slabs. The price of the shares that were tendered for the repurchase will be deemed a capital loss that can be carried forward or set off against subsequent capital gains.Since the money from share buybacks will now be taxed at the same rate as dividends, investors may become less enthusiastic. The buyback tax will no longer apply to corporations, which will result in a rise in cash flow.
However, investors in high-tax brackets and cash-rich businesses may become less interested in share repurchase plans as a result of the buyback revenue being taxed as dividends. Companies may start prioritizing dividends over buybacks in the future, according to Waterfield Advisors senior director of listed investments Vipul Bhowar.
Out of all the enterprises, five companies have bought back shares worth Rs 4,491 crore from their equity shareholders: Indus Towers, Aurobindo Pharma, Welspun Living, TTK Prestige, and Navneet Publication.
The six firms that are left are Symphony, Cera Sanitaryware, Savita Oil Technologies, Dhanuka Agritech, Chaman Lal Setia Exports, and AIA Engineering. These companies are currently accepting repurchase proposals, and they will end on August 30.The ten other businesses, which include Mayur Uniquoters, Aarti Drugs, Transport Corporation of India, Nucleus Software Exports, KDDC, and Technocraft Industries (India), have accepted proposals for share buybacks but have not yet disclosed a timeline for the repurchase.
These businesses have all declared plans to repurchase shares via tender offers in a proportional manner.
Kotak Institutional Equities analysts claim that large IT businesses repurchase shares and distribute between 70 and 100 percent of their free cash flow (FCF) to shareholders.
TCS and Wipro employ a combination of dividends and buybacks. As part of its capital return program, Wipro depends on buybacks the most out of all of these. In the future, businesses would only employ dividends as a return on capital, according to a new note co-authored by Kotak Institutional Equities (KIE) co-head Sanjeev Prasad, Suvodeep Rakshit, Anindya Bhowmik, and Sunita Baldawa.
