Why are these 7 companies buying back their shares?

In first quarter of 2016 so far, as many as seven companies have announced buy back of shares and what is interesting is, out of these seven companies Wipro, Dr.Reddy’s Laboratories and Bharti Airtel are constituents of BSE Sensex.

A share buy back is an interesting corporate action which allows companies to invest in themselves. A buyback is the repurchase of shares, which are outstanding by a company. This action of share buyback will reduce the number of shares in the market thus leading to improvement in EPS and RoE. Thus buyback is done to increase the value of shares that are outstanding and also at times to minimise the risks of hostile takeovers.Share buy back also has a signalling effect, suggesting that the management believes there is value in the share and is trading at a discount. 

Following companies have opted for share buyback in this quarter alone, Baba Arts, ECE Industries, Onmobile Global, Wipro, Dr. Reddy’s Laboratories, Bharti Airtel and Bharti Infratel. Wipro, the technology giant will be opting for the tender offer along with Baba Arts and Smartlink Network Systems. The remaining four companies will be opting for a open market purchase.

In what could be strong reason prompting companies to go far buy back is the presence of double taxation on dividends. Dividend distribution tax could be the reason for companies to take the share buy back route. By buying back the shares the company is benefiting long term investors by savings on taxes and providing support to stock prices.