India Inc. is extending a banner year for share buybacks.
Seven weeks into 2019, two dozen companies led by technology major Infosys Ltd. have announced or completed plans to buy Rs 170.5 billion ($2.4 billion) of their own stock, according to data compiled by Bloomberg. This compares with about Rs 545 billion for all of 2018, which was the highest in at least six years, the data show.
“Buybacks this year are likely to equal the year before, if not exceed, as improving liquidity boosts cash flows for companies,” said Sameer Kalra, president of Target Investing, an investment advisory firm based in Mumbai.
While the rush to return excess cash to investors is driven by the tax efficiency of buybacks over dividends, declining share values and a slowing global economy has helped accelerate the trend. Software exporters, which get a bulk of their revenue from abroad, are leading the pack as shrinking client budgets leave them with fewer opportunities to use their cash.
Infosys, Asia’s second-largest software exporter, last month said it would buy Rs 82.6 billion of its own stock. The offer accounts for about half of this year’s total deal value. Larger peer Tata Consultancy Services Ltd. completed a 160-billion rupee buyback in 2018. Both companies have made the offers for a second time in as many years.
Shrinking valuations are also prompting smaller companies to buy their own stock, according to Indianivesh Securities Ltd. A gauge of midcap shares is down about 10 percent since Jan. 1, extending last year’s drop that was the biggest since 2011, amid an aversion to risk assets.
“The last couple of years, especially 2018, have been a washout for small and medium-sized firms, and despite recent earnings showing signs of economic recovery, investor reaction hasn’t been favorable,” said Dharmesh Kant, head of research at Indianivesh. “The buybacks show the founders are confident about their business models.”
Even state-run firms, including Coal India Ltd., hydro-power generator NHPC Ltd. and iron-ore miner NMDC Ltd. are on a buying spree to help the government -- their biggest shareholder -- meet its asset-sale target.
Buybacks allow cash-rich state firms to return excess funds to the government in a tax-efficient manner than paying out dividends, which attract a distribution tax, Target’s Kalra said.