Stock buybacks, or share repurchases, occur when a company uses its cash reserves to buy back its own shares, reducing outstanding shares. This strategy, prevalent in mature industries like IT, impacts financial metrics and shareholder value. Buybacks offer flexibility over dividends, signaling confidence while returning capital. Let’s explore the concept before analyzing Infosys’s ₹18,000 crore buyback, its execution, and its implications for investors.

Why Companies Use Buybacks: Benefits and Risks

Buybacks serve strategic goals but carry trade-offs.

• Signal Undervaluation: Management’s repurchase suggests the stock is underpriced, boosting confidence and price stability.
• Enhance Financial Metrics: Fewer shares increase earnings per share (EPS) and return on equity (ROE); counters dilution from stock options.
• Flexible Capital Return: Unlike rigid dividends, buybacks are adjustable and tax-efficient, with only sellers incurring capital gains.
• Potential Downsides: Diverts funds from growth like R&D; buying at peak prices risks losses; critics see EPS boosts as short-term executive incentive plays.

How Shareholders Gain from Buybacks: Opportunities and Challenges

Shareholders benefit in varied ways, but outcomes differ.

• Increased Ownership: Reduced shares mean a larger stake per holder, concentrating company value.
• Stock Price Potential: Lower supply can drive prices up; tax benefits via deferred gains for non-sellers.
• Long-Term Returns: Higher future dividends per share (DPS) and total shareholder return (TSR) through compounding.
• Challenges to Note: Unequal participation (e.g., institutional bias); signals limited growth; market drops can erase gains.

Globally, U.S. firms authorize over $1 trillion annually in buybacks. In India, SEBI caps repurchases at 25% of capital plus reserves for fiscal discipline.

Infosys’s Buyback Strategy: Capital Return in a Mature IT Sector

Infosys, a leading Indian IT firm (NSE/BSE, NYSE: INFY), leverages buybacks to manage robust free cash flow (FCF) from outsourcing and digital services. FY25 revenue reached ₹1.57 lakh crore, with profits at ₹26,700 crore and net cash of ₹40,000 crore. Its policy commits to returning 85% of FCF (FY25: ₹34,549 crore) via dividends and buybacks.

Infosys’s History of Share Repurchasing

• Since 2017: Executed ~₹57,760 crore across programs (e.g., 2017: ₹13,000 crore; 2019: ₹8,260 crore; 2021: ₹9,200 crore).
• Execution Methods: Mix of open-market purchases and tender offers, often at premiums, to support EPS amid talent attrition and economic slowdowns.

Details of Infosys’s September 2025 Buyback

• Scale and Terms: Largest ever at ₹18,000 crore (~$2 billion) for up to 100 million shares (~2.41% of equity) at ₹1,800 per share—a 19% premium over the ~₹1,510-₹1,525 closing price.
• Market Reaction: Shares rose 2-3%, signaling market approval and perceived undervaluation (P/E ~22x vs. historical 25-30x).

Evaluating Infosys’s Buyback: Impacts on EPS, Dividends, and Strategic Choices

This buyback invites scrutiny on its implications for investors.

• EPS Impact: Grew ~5.7% CAGR (FY23-25: ₹57.63 to ₹64.50), partly from share reductions (~2-3%/year). New program: Potential 2-3% FY26 EPS boost. Critique: Masks ~4% organic profit growth, raising concerns of “artificial” support.
• Dividend Effects: Paid annually since 1993; FY25 DPS: ₹43 (~₹17,850 crore total). Buyback avoids ~₹4,300 crore/year on repurchased shares, potentially increasing DPS by ~2.3%.
• Cost Recovery Timeline: Recoup ₹18,000 crore via dividend avoidance: ~4.2 years (flat DPS); 3.7-4.0 years (5-10% DPS growth). Excludes EPS/price benefits.
• AI Investment Trade-Off: Cumulative ~₹66,000 crore could fund transformative AI (e.g., acquisitions, large language models). Infosys invests ~₹3,000 crore/year in AI (2% R&D; 60% deals via Topaz/Cobalt), but peers like Accenture are bolder, risking lag in a sector facing 20-30% automation.
• Rationale for 19% Premium: Ensures tender participation vs. market buys (adds ~₹3,000 crore cost but avoids undersubscription risks of, e.g., 5% premium). Aligns with historical 18-30% premiums; boosts sentiment.
• Strategic Implications: Signals a mature, shareholder-centric firm prioritizing TSR (~8-10% via yields/appreciation). Appeals to income investors but flags caution in AI-driven disruption.

How Infosys Will Execute the Buyback: Tender Offer Process

Infosys chose a tender offer for speed and certainty, unlike slower open-market buys.

• Approval Steps: Board-approved September 11; awaits shareholder postal ballot (e-voting) for special resolution.
• Eligibility via Record Date: Forthcoming announcement; shareholders as of date (including pre-date buyers) qualify.
• Notification Channels: Via exchanges, Infosys’s investor relations site, brokers (email/SMS); no direct calls for fairness.
• Tender Submission: 7-10 days post-record date; via broker platforms or forms to registrar (e.g., KFin Technologies). Demat shares required.
• Acceptance Rules: Proportionate if oversubscribed; 15% retail quota for priority.
• Completion Timeline: Expected early 2026; ADS holders convert to participate.

This ensures broad access for ~2.6 million shareholders, maximizing EPS impact.

Uncertainty of Buyback Benefits: Gains Not Guaranteed

The 19% premium attracts interest, but outcomes vary.

• Oversubscription Risk: Past buybacks saw 2-3x demand, leading to partial acceptance (e.g., 50% ratio: half shares bought).
• Uneven Benefits: Institutions may dominate; retail quota aids but is limited.
• Non-Participant Gains: EPS and price uplift benefit non-tenderers, without immediate cash.
• Tax and Market Factors: Long-term capital gains at 12.5% for holdings over one year; higher rates for short-term; market shifts could erode premium.

In conclusion, as an investor, Infosys’s buyback offers a compelling opportunity to realize immediate gains through the 19% premium or benefit from potential EPS and price increases by holding. However, uncertainties like oversubscription and market volatility mean gains aren’t assured. You must weigh your goals—short-term liquidity versus long-term growth—against the risk of partial tender acceptance and the company’s cautious approach in the AI-driven IT landscape.