The country’s largest buyback programme has begun, although with initial small steps. Reliance Industries Ltd (RIL) has started the Rs 10,000-crore programme by buying small quantities of its own shares. Since the start of the buyback on February 7, the company has bought back about 545,000 (0.54 million) shares. At an average price of Rs 800, this amounts to Rs 44 crore.
According to information on the Bombay Stock Exchange (BSE) website, the company has sporadically entered the market on six occasions to buy stocks mostly in small quantities. Interestingly, the bulk of purchases have taken place in the previous two trading sessions when the stock price had slipped below Rs 800 per share.
The company bought 2,55,000 lakh shares on Tuesday, when the stock had closed at Rs 781, and another 1,20,000 on Wednesday, when the scrip closed at Rs 796.05. According to back-of-the-envelope calculations, the buyback cost per share works out to less than Rs 800 per share.
“It's surprising that the company has bought back so less. As the stock is trading substantially below the maximum buyback price, one would have expected them to buy aggressively ,” said Sandip Sabharwal, head of portfolio management services at Prabhudas Lilladher.
Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global, added, “The company still has lot of time left. But it remains to be seen how aggressive they are about this buyback programme.”
The buyback programme by RIL, largest announced in India's capital market history, will end on January 19, 2013. The company has set the maximum buyback price of Rs 870 per share.
The stock has lost around three per cent since the buyback opened. RIL closed at Rs 810.35 per share, down Rs 8.30, or 1.01 per cent on the BSE on Thursday.
Market experts say RIL is not adopting a very aggressive approach to the buyback programme and is largely entering the market if the share price tends to be below Rs 800 per share.
“Their strategy seems to be to buy only when the share price goes below Rs 800 per share,” said Sabharwal. “One of the reasons for the slow approach could be that the stock market has turned buoyant this year, which the company believes might naturally support the stock price. Maybe they will buyback aggressively if the market is weak, ” he added.
“From the buying pattern so far, it looks like RIL will step up the buying whenever the share price moves in the range between Rs 750 and Rs 790 per share. As a result, Rs 750 will be good support for the stock,” said Thunuguntla.
The RIL stock has lost nearly three per cent since the start of its buyback programme, underperforming the benchmark Sensex which has remained flat during this period.
On previous occasions, too, the company had not pursued the buyback aggressively. In 2004, when the company had undertaken a Rs 3,000-crore buyback programme, it bought back shares worth only Rs 150, or five per cent of the proposed size.