Infosys shares drop 2.6% despite buyback proposal, end at Rs 1,425

The stock underperformed both the Nifty and the Nifty IT index, which fell 1.5% and 2%, respectively

Shares of Infosys declined 2.6 per cent to finish at Rs 1,425 on Tuesday, a day after the IT major said it will soon decide on a buyback programme. The stock underperformed both the Nifty and the Nifty IT index, which fell 1.5 per cent and 2 per cent, respectively. 

The buyback proposal comes at a time when investor sentiment towards IT stocks has taken a sharp U-turn. From being the best-performing sector post the pandemic, IT stocks have fallen out of favour amid fears of a global recession. Shares of Infosys are down 25 per cent this year.

Analysts expect the company to announce a Rs 11,000-crore buyback. “Considering a net-worth of Rs 74,000 crore, maximum size of the buyback can be Rs 18,500cr (as a company can buy back up to a maximum of 25 per cent of its net-worth). However, given its capital allocation policy of returning 85 per cent of free cash flows to shareholders and the expected dividend payments, we believe the buyback is likely to be Rs 11,000-12,000 crore,” said Sriram Velayudhan, Vice President, IIFL Alternative Research.

In recent years, Infosys has done three buybacks. In November 2017, it did a Rs 13,000-crore buyback followed by Rs 8,260-crore one in January 2019 and Rs 9,200 crore in April last year.

“Infosys has returned about 73 per cent of its cash flow between FY20-FY22, which is behind its target of 85 per cent (cash to be returned between FY20-FY24). We believe Infosys to do a cash flow of Rs 25,000 crore in FY23, therefore to reach 85 per cent goal, it will likely be doing buyback of about Rs 11,000 crore in FY23,” said Abhilash Pagaria of Nuvama Alternative & Quantitative Research. He expects Infosys to opt for an open market buyback and set a maximum price between Rs 1,750 and Rs 1,850 per share.

Infosys’ board will meet on October 13 to consider the buyback proposal, along with its September quarter financials.