CHENNAI: In a move that could trigger a fresh trend in the sector, Tata Consultancy Services (TCS) said on Thursday that its board would meet next week to consider a share buyback programme. The announcement comes days after rival Cognizant announced its $3.4-billion buyback plan and amid a market buzz that Infosys might follow suit with a `12,000-crore share buyback.
TCS did not disclose the size of the buyback, though. “Board of Directors will consider a proposal for buyback of equity shares of the company at its meeting to be held on February 20, 2017,” it said in a BSE filing.
Buyback is the purchase by a company of its outstanding shares, which results in reduction of the number of shares in the open market. Companies resort to buybacks to show the management and promoters have confidence in the business and to pare cash pile.
Buybacks are also expected to boost the earnings per share of companies and stabilise stock price. According to Sebi norms, buybacks up to 10 per cent paid-up equity capital and reserves don’t need shareholders’ approval.
The decision by TCS, India’s largest IT services firm, comes in the backdrop of investors raising concerns over the huge cash pile that the company is sitting on. As of end-December 2016, TCS had `43,169 crore cash and investments on its book, which is roughly 10 per cent of its market capitalisation.
On Thursday, Infosys hinted that it might also announce a share buyback in the near future. In an interview to a television channel, Infosys’ chief operating officer Pravin Rao said, “We are not averse to buyback, the board is not averse to it.” The second largest software services firm in India, is sitting on a cash pile of `35,697 crore or $5.25 billion as on December 31, 2016.
Hailing TCS’ decision, former Infosys chief financial officer Mohandas Pai said, “TCS’ buyback will help the company and the stock price. TCS has demonstrated that its leadership is not weak.” After Cognizant’s buyback announcement, experts had said it would prompt other large IT firms to consider a similar action.
In an interview to a television channel on Wednesday, TCS’ outgoing chief N Chandrasekaran had said the company had received suggestions from investors over the need for certainty on dividend policy along with share buyback to distribute the cash. “These two comments have come from investors and we will discuss it in the board,” Chandrasekaran had said.