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IT giant Infosys’s biggest ever buyback of Rs 18,000 crore is in the news this week. The company has fixed November 14 as the record date for buyback, that is, investors who buy shares till November 13 will be eligible. The question is, will this deal prove beneficial for retail investors or will the tax rules ruin their earnings?
New Delhi. Infosys will buy back 10 crore shares at a price of Rs 1,800 per share, which is about 18 percent more than the current market price. This is approximately 2.41 percent of the total equity of the company. The special thing is that 15 percent share in buyback has been reserved for small investors. It has been told by the company that the promoter group, which includes Nandan Nilekani and Sudha Murthy, will not participate in this buyback. This can create more opportunities for retail investors.
Tax rules changed the mathematics
However, after the new tax provisions implemented in October 2024, the entire profit from buyback will now be considered as ‘deemed dividend’ and will be taxed as per the tax slab of the investor. This means that this deal may prove to be less attractive for high income group investors. Whereas earlier the earnings from buyback were tax-free, now up to 30 percent tax may have to be paid on it. Analysts say that for investors in higher tax slabs, paying 10 percent long term capital gains tax by selling shares in the open market may be a better option.
Golden opportunity for small investors
This buyback opportunity can be more beneficial for small investors. Because with 15 percent reservation under SEBI rules, their acceptance ratio remains higher than that of normal investors. Apart from this, with the promoters staying out, these investors can get more stake. However, experts recommend that investors who trust Infosys for the long term should hold on. The company’s big deals and decreasing attrition rate indicate that its stock may rise again in the coming times.
What strategy should investors adopt?
Short-term investors can take quick profits by partially participating in the buyback, while long-term investors should remain confident of the company’s fundamental growth. However, market experts believe that there is less attraction for big investors due to tax burden. Therefore, every investor should take a decision as per his tax slab, risk appetite and investment objectives – because not every buyback is beneficial for everyone.
