'Buy Infosys, sell in buyback and you could earn up to 25%'

Retail investors looking to make short-term gains can buy Infosys shares before October 30 and tender them in the buyback offer to earn a return of 20-25 per cent over the next few weeks, HDFC Securities has said in its latest report. The firm believes the higher return will be due to a high acceptance ratio.

Infosys has announced November 1 as record date for its Rs 13,000-crore buyback. The Bengaluru-based tech giant announced its plan to buy back 11.30 crore shares, or 4.92 per cent of its equity, through a tender offer at Rs 1,150 per share, a 24 per cent premium to its Wednesday's close of Rs 930.

As per Sebi regulations, 15 per cent of the offer size that is Rs 1,950 crore will be reserved for small sharehold ers holding shares upto a value of Rs 2 lakh as on the record date.

HDFC Securities estimates that if all small shareholders holding shares upto 200 units tender their shares in the buyback offer the likely acceptance ratio would work out to 59 per cent. That means if a retail investor tenders 100 shares, the company would buy 59.

"We have studied the recent tender buybacks conducted by companies and feel that acceptance ratio for Infosys could be high. Most smallshareholdersdonottakepart in such offers with the result that the acceptance ratio becomes high," the firm said in a note.

Investors who followed a similar plan during the TCS, HCL Tech and Mphasis buybacks ended up earning handsome returns and HDFC Securities believes that Infosys could perform in a similar manner. TCS small shareholders earned a 47 per cent return, while HCL Tech and Mphasis shareholders earned 35 per cent and 40 per cent, respectively.



In the TCS buyback in February this year, only 21.4 per cent of the outstanding shares held by shareholders holding less than 100 shares as per FY16 Annual Report were offered resulting in 100 per cent acceptance ratio as against the theoretical acceptance ratio of 42.9 per cent in case every eligible small shareholder tendered their shares.

Hence it is very likely that acceptance ratio would be high, more than 59 per cent, if not 100 per cent in this case, according to HDFC Securities. Infosys shares have risen 4 per cent since the beginning of the month.