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Buy Back Shares in NSE Market

A1 Intraday Tips Technical Advisory team as tried to explain the term and meaning of buy back of shares in the NSE Stock Exchange. The basic term share buybacks is to reduces the number of shares available in the market by buying the same which increases EPS on the remaining shares, which ultimately benefit the shareholders. A buyback occurs when the issuing company pays shareholders to take the portion of its ownership that was previously distributed among public and private investors at a price which is normally more than the price prevailing in the Nse market.

Buy Back - Good for Company, Promoters & Shareholders

Buy Back Share's is a corporate action by its promoters in which a company buys back its own shares from the open Market from its existing Shareholders. Usually Company buy the shares at running price or at higher than market price. In buy back shares companies promoters and directors increase their holding of the shares listed in nse market. The Public Share Holding decrease due to this buy back of shares by promoters, as public sell their shares to promoters.

Buy Back Shares also known as a share repurchase from directly share holders or from open market is very good for the company as well its other share holders, who don't sell their shares. It gives an impression that the promoters are seeing a growth in the value of shares in the near future, which is positive for the company and it share holders.

Buy back of Shares in NSE Market

Buy Back of Shares by Promoters in NSE Market

Why Company Prefer the buy back of Shares ?

Normally if the financial condition of a company is healthy i.e it has lot of cash in its books/Balance sheet, Promoters prefer to buy back Shares. Also if directors /promoters of a company thinks that in future the stock price of their company will go up, they may choose to buy back stocks. We have listed some reasons for buy back of shares.

  • Buy back shares can help a business as it reduces the cost of capital.
  • Benefit from temporary undervaluation of the stock. As stock price tend to go up.
  • It help promoters to Consolidate their stake in their company, inflate important financial metrics or free up profits to pay executive's their bonuses and dividends.
  • Buying back shares those were initially issued to raise money, if they have lot of cash with them.
  • A company can give a signal that stock is undervalued, a buyback can be seen as a sign that the company/firm is doing well.
  • 6 Most of the companies who are cash rich and they are paying a regular dividend have to pay dividend distribution tax, as a result of these companies are basically resorting to the buyback.

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Effect on Buy Back of Shares

A stock buyback, also known as a share repurchase can be defined as a repurchase done by promoters of its shares held by the public in open market. Due to buy back EPS tend to increase on the remaining shares, benefiting shareholders as well as promoters in the long run. A financial perspective of this buyback is that, it benefit investors by improving shareholder value, increasing share prices and creating tax beneficial opportunities for them. On the balance sheet, a share buy back will reduce the company's cash holdings, and consequently its assets reflection in its balance sheet, by the amount of the cash used for the buyback of shares. Sometimes the company feels the shares are undervalued, a share buyback is used to pump up the stock price, which acts like a support or new base for the stock.

Buy back of Shares Approved / done in 2020

Delta Corp Ltd

Delta Corp had consider buyback on March 28, shares hit upper circuit due to the news of buy back. In a regulatory filing, the company said, "The board of directors of Delta Corp will be held on Saturday, 28th March 2020 to consider the proposal for buy-back of fully paid-up equity shares of face value of Re 1 each of the company."

Sterlite Technologies Limited

The board of directors of Sterlite Technologies on Tuesday approved a buyback proposal worth Rs 145 crore at a price not exceeding Rs 150 a share. The maximum buyback size represents 9.95 per cent and 9.32 per cent of the aggregate of the total paid-up equity capital and free reserves of the company based on the audited standalone and consolidated financial statements respectively, for the financial year ended on March 31, 2019.

Sun Pharmaceutical Industries Limited

In a regulatory filing the company Sun Pharma said that the board of directors of the company, at its meeting held on Tuesday has approved the buy-back of its equity shares from the open market at a maximum price of Rs 425 per share for an aggregate maximum amount of up to Rs 1,700 crore. It makes sense for the retail investors with small holdings to tender their shares in the buyback offer. The stock has cumulatively corrected 27% year to date.

It has underperformed the sectoral index as well as most of its peers on the bourses. The promoter holding currently stands at 54.6% with 10% under pledge. With a share buyback leading to increase in promoter’s holding, it is typically seen as a confidence-building exercise for the company’s investors.

Indian Oil Corporation Ltd

The Centre may direct Indian Oil Corporation (IOC) to buy back its 3 percent stake to bolster government finances as tax collection and divestment targets lag, The Economic Times reported.

The repurchase programmed would be for 3% shares worth Rs 3,200 crore, sources told the paper. The finance ministry is considering increased dividends by oil companies, share sale and buybacks to help the government balance its finances.

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