Should retail investors tend their shares in Infosys buyback plan?
Infosys is going through a difficult phase as its CEO and MD Vishal Sikka has resigned due to ongoing tirade with co-founder Narayana Murthy. The stock has fallen nearly 15% but can the share buyback plan stem the loss? What should retail investors do with their shares?
- Infosys shares have fallen nearly 15% over the past few days
- Share buyback of Rs 13,000 crore on track, company said
- Retail investors will get to sell 15% of the total as per Sebi rules
Amidst the chaos that ensued in Infosys' board room after its CEO and MD Vishal Sikka resigned with immediate effect, the IT major tried to stem the 15% stock crash by reiterating its commitment towards the share buyback plan of Rs 13,000 crore.
Late last week, Infosys Ltd confirmed that the share buyback plan will go ahead and the company will earmark Rs 13,000 crore for the buyback at Rs 1,150 per share. It is interesting to note that the buyback at Rs 1,150 per share was at a premium of 15% over the share price of the company before Sikka resigned from his post.
The stock price of Infosys since then has fallen nearly 15% which means that the premium shareholders may get if they sell their Infosys shares back to the company could be at 30% (given today's share price of the company).
Share price of Infosys Ltd closed at under Rs 890 per share on Tuesday August 22, 2017.
However, retail investors are likely to form only 15% of the total buyback. Angel Broking said, "As per SEBI regulations small investors need to be offered at least 15% of the total buyback size. Small shareholder here refers to the IPO definition of holdings below Rs 2 lakh. Thus these small shareholders will be entitled to shares to the tune of Rs1950 crore (15% of Rs.13,000 crore)."
Should retail investors opt for buyback?
Angel Broking said, "Despite the concerns over growth and the digital shift, Infosys still earns an operating margin of 24%. That is a feat that very few companies have consistently maintained in India."
"Secondly, it also needs to be remembered that it could be going through 3-4 years of uncertainty as companies like Infosys adjust to the new normal. And the buyback price is close to the peak touched by the stock in the last 5 years. In fact, in the last 5 years, the stock has only briefly for a period of 2-3 months in mid-2016 quoted above this buyback price," it said.
Girish Pai and Devanshu Bansal of Nirmal Bang Institutional Equities in a report dated August 21, 2017 said, "We believe the buyback, which is likely to be executed over the next few months, could support the stock in the short term. We believe that selling into this strength is the right strategy. We also believe the true fundamentals of the company will get reflected after the buyback."