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Gandhi Special Tubes rallied 17% to Rs 360 on the BSE after the company announced that its board will meet on December 18 to consider share buyback proposal. “A meeting of the board of directors of the company is scheduled to be held on December 18, 2017, to consider Buy back of the fully paid up equity shares of the company including matters related/incidental thereto,” Gandhi Special Tubes said in a BSE filing. As of September 30, 2017, the promoters held 73.27% stake in Gandhi Special Tubes. Individual shareholders held 18.88% holding, followed by foreign portfolio investors (4.24%) and bodies corporate (1.78%). A buyback is the purchase by a company of its outstanding shares that reduces the number of its shares in the open market.
Companies buyback shares for a number of reasons, such as to increase the value of shares still available by reducing the supply of them or eliminate any threats by shareholders who may be looking for a controlling stake. A company may feel its shares are undervalued and buy them back to provide investors with a return, and because the company is bullish on its current operations. A buyback also boosts the proportional share of earnings a share is allocated; all else equal, this boosts the valuation of a stock even if it maintains the same price-to-earnings (P/E) ratio. Thus far in the calendar year 2017, the stock had underperformed the market by gaining just 2% as compared to 25% rise in the S&P BSE Sensex till Friday.