Companies flush with cash propose buybacks to lift falling stocks

Mumbai: Cash-rich Indian companies are looking to buy their shares back from investors in their attempts to boost shareholder confidence amid the brutal sell-off in the market.

In the past two weeks, five companies — Sun Pharma, Thomas Cook, Supreme Petrochem, Emami and SP Apparels — have announced or proposed buybacks. However, the tax on buybacks could be a dampener and corporates and market participants are appealing to the government to suspend the tax for at least a year.

On Tuesday, drug maker Sun Pharmaceuticals approved the buyback of 4 crore shares representing 1.67% of the total equity capital of the company at Rs 425. Shares of Sun Pharma declined 10% in the past one month to close at Rs 362.50 on Wednesday.


Consumer goods major Emami will meet on Thursday to consider the buyback. The promoters currently hold 52.74% stake in the company. Shares of Emami has declined 31% in the last one month from Rs 272 to Rs 188.

“Many more companies may announce buybacks in coming days but government should remove or at least suspend the buyback tax for a year so that companies or promoters who have faith in their business can buy back shares from the market during this carnage,” said Raamdeo Agrawal, chairman, Motilal Oswal Financial Services. “Corporate resources are much bigger than any other resources which can bring stability to the stock price.”

Thomas Cook has also has received board approval for a buyback of up to 2.6 crore shares at Rs 57.50 apiece for a maximum aggregate amount of Rs 150 crore. Shares of Thomas Cook ended 10% lower on Wednesday to close at Rs 28.40.

The S&P BSE Sensex has declined over 32% in the last one month while shares of several cash rich companies have plunged by up to 50% in this period. Company promoters, too, are batting for removal of a buyback tax.

“Buyback tax should be removed immediately and companies that are confident should be encouraged to buy back their shares and bring stability to the market,” said Anil Agarwal, chairman, Vedanta Resources in a recent television interview. “All over the world, there is no tax on buyback, but India has a 22% tax.”

Finance minister Nirmala Sitharaman imposed a share buyback tax of 20% on listed companies in last year’s budget. During the current fiscal, 48 companies have bought back shares worth Rs 17,550 crore. Last financial year, 63 companies bought back shares worth Rs 55,295 crore.