Markets love companies that repurchase shares and reward them instantly. Businesses are happy,
shareholders are happy, and thus begins a virtuous cycle of wealth generation. a minimum of in theory. Or going by the wave of share buybacks by listed companies that’s hitting the shores of all major stock markets. Goldman Sachs estimates $1 trillion in buybacks this year by S&P 500 companies. A record high. Between 2010 and 2019, US firms distributed $4 trillion in dividends and $6 trillion in buybacks. India isn’t untouched by this wave. Last week its largest IT company by revenue, TCS, closed a $2.4 billion buyback. Since 2010, Indian companies have repurchased shares worth nearly $32.3 billion. TCS has led the pack with fellow IT companies, but how buybacks have soared since 2016 may be a fascinating story in itself. Share buybacks are handy tools for distributing excess cash to shareholders in a very tax-efficient manner. And with repurchased shares required to be extinguished, buybacks improve financial metrics like earnings per share (EPS) and return on equity (ROE) on the remaining shares. This, in turn, aids their valuation multiples and also the share price. On the flip side, buybacks are criticised for not allowing investment back to the business for future growth, and for being a tool to govern stock prices and financial metrics linked to the compensation of executives. Internationally, there’s evidence galore. Two industries that top the amount of buybacks—IT and pharma—are also the 2 pillars of India's economy right now; shining samples of exports; model sectors that grew on the rear of the local human resource pool. Alas, they need performed so differently in harbouring long-term outperformers and underperformers.