Buybacks may soon overtake dividends as the preferred route for cash-rich Indian companies returning money to shareholders, with Ikigai Asset Manager saying information technology and pharmaceutical firms are potentially wellplaced to lead the next phase of share repurchases.
The brokerage said changes announced in Budget 2026 have sharply improved the tax efficiency of buybacks for minority shareholders, reviving a market that had nearly collapsed after the 2024 tax overhaul.
“After an 88% collapse in FY25 due to punitive dividend tax treatment, Budget 2026 removes the key hurdle. Expect acceleration in FY27,” Ikigai Asset Manager said in its report. The firm added that “IT & Pharma are the highest-probability sectors” because of strong free cash flow generation, low debt and large cash reserves.
Why buybacks are gaining favour again
Ikigai Asset Manager said the latest tax framework has significantly changed the economics of buybacks for retail shareholders.
Under the earlier regime introduced in October 2024, buyback proceeds were taxed like dividends, with effective taxation rising as high as 35.9% on gross proceeds for some shareholders. According to the brokerage, this led to a sharp drop in buyback activity across India Inc.
Budget 2026 reversed that structure by taxing only net gains at 12.5% long-term capital gains tax for non-promoter shareholders.
Ikigai Asset Manager illustrated the difference using a Rs 100 payout example. Under the dividend route, a minority shareholder retained around Rs 64.1 after taxes, while the buyback route left nearly Rs 94.7 in hand under the new regime.
“Buybacks are a superior capital allocation tool because they signal management confidence and systematically improve the financial metrics of the company without the tax leakage associated with dividends,” the report said.
The report argued that buybacks create long-term gains for shareholders by reducing the number of outstanding shares, thereby lifting earnings per share even without major profit growth. Ikigai Asset Manager’s simulation showed that a company buying back 5% of outstanding shares every two years could deliver around 30% higher earnings per share growth over a decade compared with companies relying only on dividends.
The brokerage also noted that globally, buybacks have already overtaken dividends as the dominant shareholder payout route. S&P 500 companies returned more than $1 trillion through buybacks in calendar year 2025, while nearly 45% of US companies opted for buybacks compared with around 30% distributing dividends.
Wipro and pharma firms signal early momentum
Ikigai Asset Manager said the buyback cycle has already started taking shape in India, led by information technology and pharmaceutical companies.
Wipro announced a Rs 15,000 crore buyback in FY27 with a premium of around 19%, covering nearly 5.7% of outstanding equity shares, according to the report.
Among pharmaceutical companies, Aurobindo Pharma announced a Rs 800 crore buyback at an estimated premium of 11.6%, while Windlas Biotech unveiled a Rs 470 crore buyback at a premium of roughly 22%. Jagsonpal Pharma also entered the list with a Rs 40 crore buyback carrying a premium of nearly 42%.
The brokerage said these sectors are natural candidates because they continue to generate strong free cash flow while carrying comparatively low leverage on balance sheets.
“Near-zero debt, strong free cash flow, promoter holding below 75%, and ESOP dilution rationale make buybacks a natural capital allocation choice,” Ikigai Asset Manager said.
The report further stated that healthcare and information technology companies are sitting on some of the strongest cash positions within the NSE 500 universe.
Corporate India’s cash pile is at record levels
According to Ikigai Asset Manager, Indian companies now have enough balance-sheet strength to sustain a fresh cycle of large-scale buybacks.
The brokerage said operating cash flow for NSE 500 companies excluding financial firms climbed from Rs 11.8 lakh crore in FY23 to Rs 15.8 lakh crore in FY25. Free cash flow rose from Rs 5.3 lakh crore to Rs 6.8 lakh crore during the same period.
Cash balances among NSE 500 non-financial companies also crossed Rs 10.3 lakh crore in FY25, the report noted.
“Corporate India has never been stronger,” Ikigai Asset Manager said while discussing rising cash reserves and improving balance sheets.
The brokerage added that lower valuations across several sectors may encourage companies to repurchase shares more aggressively over the next two years.
Ikigai Asset Manager estimated that annual buybacks worth Rs 1,00,000 crore among Nifty 50 non-financial companies could add nearly 80 basis points to earnings per share growth by FY28.
Tata Consultancy Services remains India’s biggest buyback case study
The report identified Tata Consultancy Services as one of India’s strongest examples of sustained buyback-led capital return.
According to Ikigai Asset Manager, Tata Consultancy Services carried out more than Rs 80,000 crore worth of buybacks over the past decade through multiple rounds between FY17 and FY24.
The brokerage said consistent repurchases helped support shareholder returns while steadily reducing outstanding equity.
Ikigai Asset Manager also cited HPCL as another example where buybacks supported stock performance over a longer period. According to the report, HPCL’s open market repurchase programme created a long-term price floor that has not been breached in the past five years.
SEBI’s open market proposal may add another trigger
The brokerage said another key development is the Securities and Exchange Board of India’s consultation process on reintroducing open market buybacks.
Currently, only tender-route buybacks are permitted in India. Ikigai Asset Manager argued that open market purchases provide stronger and more sustained support to stock prices because companies can repurchase shares over several months instead of through one-time tenders.
“An open market repurchase carries the stronger signal, capital deployed at market prices,” the report said.
The brokerage also noted that open market repurchases provide companies with flexibility to buy shares during periods of weakness while giving public shareholders equal participation opportunities.
Risks remain despite the improving backdrop
Ikigai Asset Manager cautioned that a broader economic slowdown could still affect the pace of buybacks if free cash flow weakens across sectors.
The brokerage also warned that future regulatory tightening by the Securities and Exchange Board of India may restrict buyback sizes or timelines.
Another major concern relates to valuations.
“Buybacks at elevated valuations destroy value,” Ikigai Asset Manager said while cautioning companies against repurchasing shares at expensive market levels.
Even with those risks, the brokerage maintained that the combination of tax relief, stronger corporate cash flows and softer valuations has created conditions for a fresh buyback cycle, with information technology and pharmaceutical companies likely to stay at the centre of the trend over the coming quarters.
Conclusion
In the near-term, the brokerage believes companies with strong balance sheets, lower debt and surplus cash are likely to increasingly favour buybacks over large dividend payouts.
Ikigai Asset Manager said the combination of tax efficiency, earnings per share accretion and improving cash flows has created a favourable backdrop for sustained repurchase activity, particularly in information technology and pharmaceutical companies where cash reserves remain elevated.
Disclaimer: While this report analyzes market trends and tax efficiencies regarding share buybacks, it is for informational purposes and does not constitute a recommendation to buy, sell, or hold any specific security. Investors should evaluate the volatility risks associated with specific sectors and consult a SEBI-registered financial advisor before making investment decisions based on corporate actions or tax-efficiency models.
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