What you need to know about the November 30th buyback
The stock price of Infosys has been on an uptrend in the month of November and is up by nearly 10%. The immediate trigger appears to be the buyback of shares which opens on 30th November. Here is what you need to know about the Infosys buyback and how it impacts your holdings of Infosys, if any.
All about the buyback…
The actual record date for the buyback was November 01st. Therefore, any shares of Infosys bought after October 30th will not be eligible for the buyback offer. Only shares that were held by shareholders on the record date will be eligible for the buyback. The company is planning a total buyback off Rs.13,000 crore. But what matters for retail investors is that there is a 15% special quota for retail investors in the buyback offer. Retail investors have been defined as those investors holding less than shares worth Rs.200,000 on the record date. At the current price of Infosys, all shareholders holding up to 200 shares on the record date will be classified as retail investors. Here you need to grasp the concept of entitlement ratio and the acceptance ratio. With 15% reservation the retail investors will be assured of an entitlement ratio of approximately 59% that is 118 shares out of 200 shares tendered. The actual acceptance ratio will depend on the actual tendering. The more the shares are tendered in the buyback, the lesser the acceptance ratio is likely to be and vice versa.
The price impact…
There are a few basic things you need to understand. Firstly, those holding more than 200 shares will have to sell off the remaining shares to qualify for the retail quota. These shares that you sell may result in short term capital losses or even short-term capital gains where the tax at 15% will have to be paid. All these factors need to be considered before taking the decision. For those who are holding greater number of shares, the performance of the stock price post the buyback will have a major bearing on their effective returns on the Infosys stock.
What should retail investors do?
As we have seen in previous cases of buybacks like Mphasis, the Acceptance ratio was as high as 100% as less people tendered these shares. That is likely to be the case with Infosys also. So, if you are a retail investor and tender yourqualifying shares in the buyback offer, then you are very likely to get a 100% acceptance at the price of Rs.1150/-. That is a great price point and the stock may have a real effort to give that kind of returns in the normal course. The outlook for the large Indian IT companies is not exactly very flattering and you will get better opportunities in IT in the coming months. You must make the best of the buyback and use the proceeds in a more plausible story going ahead!©
