The Rs 16 billion share buyback program of Tata Consultancy Services (TCS) information technology (IT) is scheduled to open on December 18 (Friday). In November, TCS shareholders approved a proposal to buy back up to Rs 5.3 million in shares, or 1.4 percent, of the company’s total paid-up share capital at Rs 3,000 each for a total amount not to exceed the 16,000 rupees. The buyback offer will close on January 1, 2021.
So, should you offer your shares in the buyback program?
Analysts say stocks are unlikely to see a significant jump in the interim period as TCS, along with other TI stocks, have risen quite well from March 2020 lows, discounting opportunities arising from the pandemic. of Covid-19. Therefore, one may consider offering their shares in the buyback offer.
TCS has recovered a whopping 85 percent from its March low. By comparison, the benchmark S&P BSE Sensex index has recovered around 80% from its March low, BSE data (as of Dec. 11) shows.
“TCS shareholders can offer repurchase shares as there is a spread between the current price and the repurchase price. This is despite the fact that not all of the offered shares may be accepted. For investors who are bullish on TCS In the long term, the post-buyback price drop (although not expected to be large) will offer the opportunity to buy back an equivalent of the shares accepted in the market. For shareholders who are not so optimistic, the shares may be sold at the market, “suggests Deepak Jasani, head of retail research at HDFC Securities.
Stock valuations may no longer be very attractive; however, we don’t see a major downside from current levels, although the rise from here can also be gradual, adds Jasani.
Abhimanyu Sofat, IIFL Securities head of research agrees with this view. “We believe that around 70-80 percent of the shares will be auctioned in the retail segment. It makes sense to offer shares in the buyback program. It is unlikely that the shares will exceed Rs 3,000 anytime soon. However, the index Lower acceptance remains the key risk, “says Sofat.
The acceptance rate is the number of shares accepted in a buyback offer compared to the total number of shares offered. Under Sebi’s standards, 15 percent of the total buyback size is reserved for small investors with stakes of up to Rs 2 lakh in the company. Therefore, the number of shares reserved for small shareholders will be almost 0.8 million shares (15% of the 5.3 million shares). Therefore, an increase in retail participation will lead to a lower acceptance rate.
Sudip Bandyopadhyay, Group Chairman of the Inditrade Group of Companies, on the other hand, believes that TCS remains a good long-term bet and one should remain invested.
“If you are a long-term investor, top-tier IT stocks are a good bet to stay invested. If you believe in the history of globalization and technology in the future, TCS is a good bet to stay invested. But If you had bought it for a limited period of time and want to make a profit, this buyback offers a good opportunity as the buyback price is attractive, “says Bandyopadhyay.
Also, the buyback will be tax-efficient as capital gains taxes will not be applied here. Therefore, traders / investors who had a short-term horizon can definitely consider offering their shares in the buyback program, says Jyoti Roy, DVP, equity strategist at Angel Broking. The analyst also believes that if someone has an investment horizon of three years or more, they should stay.
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