Companies have repurchased nearly Rs 4,284.14 crore worth of shares since January 2018, against Rs29,130.45 crore during the same period in 2017.
Market participants said a few large buyback offers by IT majors pushed the numbers in the first half of 2017. The share repurchase offers of Tata Consultancy Services and HCL Technologies contributed Rs19,500 crore of the Rs29,130.45 crore in the first half of 2017.
“Till about 18 months back, IT majors were under a lot of pressure for buyback at a time when software industry was going through a bit of weakening period. In the last one year, industry has done well, the rupee has weakened, and IT has been an outperformer. So, relatively the pressure from minority shareholders is lower today.
“So, that may be the reason some of the companies have not gone aggressively for buybacks this year,” said an investment banker on the condition of anonymity.
Moreover, with the introduction of Long-Term Capital Gains Tax (LTCGT), the advantage of buybacks as a useful tool for returning cash to the shareholders has reduced.
Buybacks became the preferred route for companies to return wealth to shareholders in the past few years after dividend income, of over `10 lakh per annum, is taxable at 10% in the hands of all residents, domestic companies, trusts or funds except those established for religious, educational or charitable purposes.
Buybacks are the process by which companies repurchase their shares from stakeholders. The bought-back shares are extinguished, shrinking the firms’ equity base.