'Buyback' is the latest: Now smile

Share buyback seems to be the new trend in the stock markets. In the fiscal year 2016-17, around 41 companies announced buybacks and the numbers are increasing gradually, which is till date, the highest in the past six years.

The announcement of the imposition of an additional dividend distribution tax (DDT) in the Union Budget 2016-17, has made many companies rush for share buyback. Companies with huge cash reserve, have announced share buybacks. And those who have missed the opportunity, are moving aggressively to participate in such buyback programs.

After TCS announced a buyback program of up to Rs 16,000 crore last week, other IT companies like Wipro, Mphasis and HCL Tech have also announced buyback plans.

Depending on the company’s fundamentals, investors can earn good returns due to buyback programs. The higher the percentage of buyback, the greater the potential for profit. So, one should look at the size of the buyback offer, the buyback price, acceptance ratio and the duration of the offer. As there is double taxation on the dividend, share buybacks often create more value for market participants.