Dividend may soon be passe, buyback may be the new route to please investors

These days Indian equity markets are witnessing equity share buyback spree. In the financial year 2016-17, a total of nearly 45 companies opted the route of share buybacks.

The total amount of share buyback in the current financial year nearly stands at Rs 34,468 cr which is actually more than the combined amount of share buybacks that occurred in the past seven years.

Government of India had brought in Additional Dividend Tax concept wherein Finance Minister Arun Jaitley proposed to tax all those recipients receiving dividend income exceeding Rs 10 lakh to be taxed at a rate of 10%.

This is the additional tax charged even after dividend distribution tax paid by the companies.

Therefore, the companies are preferring to take the route of share buybacks instead of paying high dividends to their shareholders.

With the private companies, the central government is also forcing public sector enterprises to buy back its shares since government wishes to avoid the volatility in the stock markets.

There seems to be more buybacks coming after TCS and HCL Technologies mega buyback plans. IT sector has been under pressure due to Donald Trump’s administrative policies and US-headquartered Cognizant’s share buyback programme. TCS’s share buyback may come in the markets in next two or three months and may mark the biggest buyback offer in history of Indian markets.