New Delhi. Infosys, one of the country’s largest IT companies, is going to buy back its shares. This process is called share buyback. This process will start from Thursday i.e. 20th November. If any investor wishes, he can sell his stocks back to the company at the rate of Rs 1800 per share. Currently the price of Infosys shares is Rs 1542 and on Wednesday it closed with an increase of 3.40 percent.
But why does a company buy back shares? This question will be in your mind. There can be not one but many reasons for this. An even bigger question that directly impacts any investor is what benefit they will get from this? Let us understand what benefits retail investors get by buying back shares of a company. The answer to this also lies in the same reasons due to which the company does share buyback.
Why does the company buy back shares?
1. To increase share prices and strengthen confidence in the market.
When a company buys its own shares, the number of shares in the market reduces. If supply is less and demand remains the same, the share price automatically starts increasing. This sends the message to the company that it has full confidence in its future growth.
2. Method of returning cash to investors
Many times the company has excess cash lying with it. Instead of investing it somewhere, the company gives value to investors by buying shares. This is considered a way to provide returns to investors.
3. To increase EPS
EPS means Earnings Per Share. When the total number of shares decreases, the profit per share of the company increases. This makes the financial numbers of the company look good and also strengthens the confidence of investors.
What are the benefits for retail investors?
The three reasons mentioned above due to which a company does share buyback automatically become a profitable deal for a retail investor. understand it in detail
1. Possibility of share price increasing
As soon as buyback takes place, the supply of shares in the market decreases. When there are less shares and same demand, the price starts going up. Retail investors who already hold shares get the direct benefit of the price rise.
2. Trust in the company increases
Buyback means that the company has full confidence in its business and future growth. This signal is positive for retail investors and often increases stability and buying in the stock.
3. EPS increases, providing opportunity for further returns
Buying back shares reduces the total shares and increases the EPS. Higher EPS means that the company is earning more per share. This could give the stock an even stronger value in the long run.
Infosys is a big deal in one case
A big and good thing about the share buyback of Infosys is that the promoters or promoter group of this company are not participating in it. This means that they are not selling their share of shares. This also sends a message that the promoters of the company have confidence in its growth. They simply feel that the shares of the company are currently undervalued and by reducing their tradable number, their true value will be ascertained.
