Promoters who took the bold bet
of going for share buybacks are
now reaping handsome gains, as market sentiment in Indian
equities suddenly turned bullish last March, after turning bearish in the wake of
the worldwide financial crisis which unfolded in October 2008. The last
two fiscals saw approximately 63 companies announcing their share
buyback programs, of which 43 companies closed their buybacks by December
2009, while the remaining 20 programs are still underway. Generally, buybacks
are initiated when the companies feel that their share prices have been
depressed to the levels which fail to capture
their true value and that the markets underestimate the future of the firms.
Another common reasoning made is that cash-rich firms, for want of suitable
investments, would prefer to reward their shareholders by way of
repurchasing their own shares. However, what has added to the buyback success is the
participation from some top of the line firms like Oracle and
Ingersoll-Rand, which, in the opinion of a section of
analysts, might have done the trick for the promoters. According to VK
Sharma, Head of Research, Anagram Stock Broking, "There could be three
reasons for companies deciding to buy back their shares at this point of
time—first, prices are at attractive levels now
and the buyback will provide support to the share prices and increase value
for shareholders when shares will be extinguished. Second reason could be
excess cash in the system. Companies have enough cash but not many avenues
to employ it; in such a scenario, it makes sense that they buy back their
own shares. Third, companies might have bought back their shares earlier
at higher prices, so they must be watching the situation to average out the
price they have offered for the shares."
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