After rivals Cognizant and Tata Consultancy Services (TCS) bought buyback programs, now Infosys, India’s second-biggest software services exporter has sought approval of its shareholders to change Articles of Association, which includes a provision for share buyback. Reacting to this, analysts have said that this particular act is a result of high pressure that major IT companies are facing to return a major chunk of cash on their books to the shareholders in the form of buybacks as the overall industry growth slows down.
A postal ballot notice has been uploaded on the company’s website. “Power to purchase its own equity shares or other securities by way of a buy-back arrangement has been included and provisions relating to nomination facility for shares by a shareholder have been inserted,” it read.
Further, it added, “No director, key managerial personnel on their relatives are interested in or concerned with the resolution. The Board recommends the resolution set forth in item no 3 (share capital category) for approval of the members.”
So, what is a share buyback program? Also known as a repurchase, it is re-acquisition by a company of its own stock. It represents a more flexible way of returning money to shareholders. In most countries, a corporation can repurchase its own stock by distributing cash to existing shareholders in exchange for a fraction the company’s outstanding equity.
Earlier this month, TCS have announced a share buyback of Rs 16,000 crore. If it is approved by the authorities concerned, it will be India’s biggest surpassing Reliance Industries repurchase of Rs 10,400 crore in 2012.
Putting forth its rivalry act, Cognizant got its plan to return $ 3.4 billion to shareholders over the years, approved. This will happen with the combination of share repurchases and dividends.
According to report by PTI, Infosys, which had liquid assets including cash and cash equivalents and investments worth Rs 35,697 crore on its books at the end of December 2016, has been under pressure from investors to utilize the amount either through a share buyback program or a generous dividend.
People were skeptical if Infosys will consider the Rs 12000 crore share buyback, but it mentioned that it reviews the capital allocation policy from time to time and that its management will take a decision on share buyback at an appropriate time.
With all the top notch software firms announcing buybacks, business jury says that IT companies also need to pull up their socks over the challenges on changing dynamics of global technology.