Small- and mid-cap companies eye buybacks to shore up valuations

Small- and mid-cap companies are looking to shore up valuations of their shares and stem the price erosion by launching buybacks as the broader market is yet to show any signs of recovery. According to investment bankers, these companies are looking to buy back shares to shore up the share prices by reducing the outstanding free float available in the market. "At these market prices, the companies can save on their buying cost as several mid- and small-cap shares have been beaten down," the banker said. The media company, Jagran Prakashan, which announced its buyback last week (December 16), has seen its shares correct 45 per cent year-to-date. The small-cap Pennar Industries — which manufacturers steel strips —has seen its shares take a beating of 29 per cent.

State-owned MOIL is another company that announced its buyback plans last month. The company's shares are down 15 per cent in year-to-date. Analysts say even as buybacks are now taxed at 20 per cent, mid- and small-cap companies can end up with lower tax liability as the overall offer size is likely to be lower given the sharp fall in valuations.