Share prices get boost after buyback

Ten companies gained over 10% each, while 15 slid more than 10% in the three months

In the past three years, 80 companies have come out with their share buyback offers. Share prices in three of every five such companies surged an average of 30 per cent in the first three months after the buyback, from the time it was announced. Even for a six-month period, the percentage of companies posting gains remains the same.
 
Ten companies gained over 10 per cent each, while 15 slid more than 10 per cent in the three months. Seventy-five of the companies opted for the tender route to buy back shares and the rest used the open market.
 
Sectors such as industrials, information technology, materials and health care showed a higher incidence of buybacks, indicating a combination of rising cash levels, undervaluation and lack of investment opportunities. According to ICICI Securities, a buyback announcement could send a positive signal to the market if undervaluation of the stock is cited as the reason. Or a neutral to pessimistic view if surplus cash generation and inability to deploy cash in the business is cited as the chief reason. The common thread between stocks that outperformed after a buyback issue is that their valuations were cheap during the buyback phase. While the ones that underperformed after a buyback announcement had relatively expensive valuations, coupled with other factors, such as slowing growth, the brokerage said.