Infy stocks zoom 3.6% on share buyback buzz

Markets expect share buyback with a valuation of Rs 3,800 a share

The share price of Infosys, the country’s second largest information technology services (IT) company, rose six per cent on Wednesday on the BSE exchange, on rumours of a plan by the company to buy back shares worth $2 billion at an attractive valuation.

This, plus expectations on its selection of a chief executive officer, pushed the stock. It finally settled at 3,178.7, a rise over Tuesday’s close of 3.6 per cent.

Market sources said the expectation was of a share buyback with a valuation of Rs 3,800. The buzz was of an announcement on this at the annual general meeting (AGM) scheduled on Sunday. Infosys declined to comment on this.

TRADING BIG

• Share price zoomed on buzz that the company was planning to buy back shares worth $2 billion at a very attractive valuation
• Expectations about the company’s CEO selection also pushed the stocks
• Stocks closed at 3178.75, an increase of 3.64 per cent over the previous day’s close
• Industry analysts, however, say that such expectations are not practical given the company’s track record

Sector analysts said such expectations were impractical, given the company’s record. They also said the cash pile with the company gave rise to such expectations before each AGM.

“We would be very surprised if Infosys announces a buyback of this size, given that it would use up nearly 45 per cent of the company’s cash and cash equivalents,” a leading brokerage house said in a note sent to clients.

Adding: “The company’s management has historically been very conservative in their utilisation of cash and has liked to hold at least one year’s worth of employee expenses in cash. Such a large buyback would also limit the company’s ability for merger and acquisition (M&A), though it is possible the current management could continue to prefer organic growth as it has done in the past.”

Apart from Infosys, in a flat market on Wednesday, the IT stocks overall did well. The sectoral index went up 2.2 per cent on anticipation of the rupee weakening, a benefit to the export-driven sector. Tata Consultancy Services saw its share price up 2.2 per cent to close at 2,205.25. Wipro and HCL Technologies went up 0.7 and 0.4 per cent, respectively.

“IT stocks during the past three months have been underperforming and the CNX IT index was down almost six per cent owing to the overhang of rupee appreciation, coupled with rebalancing of portfolios towards cyclical stocks,” said Sanjeev Hota at Sharekhan. He said most IT stocks were now available at an attractive valuation.

According to Ankita Somani, a research analyst with MFSL, the fact that stocks of Infosys’ peers also did well indicated “money is coming to IT stocks”.