The share buyback announced by Infosys provides a very good opportunity for investors to exit the stock, say industry analysts. The company had announced that it will buyback 11.3 crore shares or 4.92 percent of equity capital at Rs 1,150 apiece, spending Rs 13,000 crores. The buyback price is at a steep premium of 24.5 percent from Friday’s closing price of Rs 923.25 on the NSE.
Infosys share was trading at Rs 876, down more than 5% from the previous close on Friday. The shares of Infosys had plunged by over 9.5% on Friday and closed at Rs 923.15 after company’s CEO and MD Vishal Sikka stepped down. The company announced a Rs 13,000 crore share buyback at a price of Rs 1,150 per share on Saturday.
Speaking to FE Online, Ashish Chopra from Motilal Oswal said, “The buyback provides a very good opportunity. The recent correction has made the buyback attractive. The more the price corrects, more alluring the buyback will be.” Infosys is yet to announce the record date for the buyback. Another analyst, who did not wish to be identified, told FE Online last week that the stock provides a safe haven for retail investors for want of other opportunities, as the markets currently look stretched. Buybacks are a better way to reward shareholders, as paying dividends attracts a hefty dividend distribution tax, said the analyst.
Major brokerages have predicted a steep correction for the Infosys stock in the near-term after the high profile exit of Vishal Sikka from the company. JP Morgan, one of the leading asset management and advisory firms predicts that the stock will be under pressure due to leadership vacuum and the likelihood of more departures in the near term.
According to HDFC Securities, Friday’s dramatic events starting with the resignation of Vishal Sikka, followed by the unseemly public spat between the Infosys board and its founders pose collateral risks for the firm at just the wrong time. “In our view it is the Board which is saddled with eroded credibility, as it has defended Sikka against founders’ allegations but has been unable to retain him. We think the founders are not done and expect an extended battle for credibility,” said HDFC Securities.
Further HDFC Securities believes that Infosys’ business transformation (focus on revenue productivity with automation and new offerings, including AI) faces a real risk of derailment as the company gets into ‘transition’ mode. Speaking about the near term HDFC Securities said that, while better capital allocation (buyback) and the uptick in operations are positives, leadership transition and the risk of senior attrition can hinder growth.