Tata Consultancy Services (NS: TCS) resolved to offer Rs 18000 crore in buybacks to its shareholders at its board meeting on January 12, 2022. At Rs 4500 per share, India’s largest IT corporation would repurchase four crore shares or 1.08 percent of its entire paid-up equity share capital. It’s the fourth time the corporation has done so in the last five years. The present buyback is, nevertheless, 10% greater than prior buybacks. It provides a fantastic chance for regular investors to profit by participating in the repurchase. The proposed price was 16.7% more than the last trading price on the Bombay Stock Exchange when the repurchase was announced (RS 3857).
● SEBI has instructed TCS’s share price to reserve 15% of the purchase amount for small shareholders with holdings of up to Rs 200,000 shares, as it did in the previous buyback.
● As a result, depending on how institutional shareholders tender their shares, this might result in a lower acceptance ratio.
● Resident Individuals and others owned 3.88 percent of the company’s shares as of January 7, 2022, while promoters owned 72.19 percent.
● Many analysts predict substantial involvement, particularly among ordinary investors, in order to reap short-term profits. The record date has yet to be announced, and the entire process is expected to take three months to complete.
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What are the benefits to retail investors?
By giving a premium price for its shares, this repurchase does give a profit-making opportunity for ordinary investors. Retail investors with a good outlook for the firm and its financials, on the other hand, can own the stock for the long term. Investors who choose the tender offer now risk missing out on dividends and capital appreciation opportunities, as the company’s management has stressed robust demand and cloud as key development drivers. Investors should consider the repurchase price, offer size, and length of the buyback before making a choice.
Why are TCS’s stock prices dropping?
Regardless of the repurchase, share prices have been sliding; this might be due to the influence of lower market sentiment spreading to IT sector firms. TCS, Infosys (NS: INFY), HCL Technologies Ltd (NS: HCLT), and other IT companies were trading in the red on January 20.
You can check infosys share price and only acquire (sell) Infosys shares if you or your adviser have a good (negative) outlook on the company’s prospects. The stock should not be purchased based on a repurchase; only the fundamentals and pricing should be considered. Given the current state of affairs, TCS’s near-term growth has already been factored in, with the company trading at high valuations (compared to historic metrics). TCS will need to expand at a pace of 12-14 percent for the next five years in order to justify its present market values. Although it is not impossible for the IT behemoth to attain these figures, it is far too early to infer that TCS would be able to do so on a consistent basis.