Which Companies Are Likely to Announce Buybacks After Budget Taxation Changes on Buybacks?

Companies Announce Share Buybacks Following Tax Changes

In the wake of proposed tax changes announced by Finance Minister Nirmala Sitharaman during her Budget 2024 speech on July 23, five companies are set to announce share buybacks by the first week of August.

New Taxation on Share Buybacks

The Finance Minister proposed a significant change, stating, “I propose to tax the income from share buybacks in the hands of the recipients.” This shift means the income received from the buyback of equity shares will now be taxed at the shareholder level, unlike the previous practice where the company bore the tax burden.

Immediate Responses to the Proposal

Within a week of this proposal, five companies have either announced or scheduled board meetings to discuss share buybacks. Welspun Living has already announced its buyback, with a record date of August 5. Indus Towers is set to hold its board meeting on July 30 to consider a buyback.

Other companies, including Savita Oil Technologies, Cera Sanitaryware, and AIA Engineering, have scheduled their board meetings on August 3, August 5, and August 7, respectively, to deliberate on their share buyback proposals. Notably, Aurobindo Pharma, which announced its buyback before the Budget, has a record date set for July 30.

Will IT Companies Join the Buyback Trend?

Indian IT companies frequently use share buybacks to reward shareholders. While none have announced buybacks post their recent quarterly results, the new tax changes might prompt them to consider this option. However, they must adhere to SEBI regulations, which require a 365-day cooling-off period between successive buybacks.

Eligibility of Major IT Companies for Share Buybacks

• TCS: Approved its last buyback in October 2023, making it eligible for a new buyback in October 2024.
• Infosys: Completed its last buyback in February 2023, so it is currently eligible for another buyback.
• HCLTech and Tech Mahindra: Have not executed buybacks since 2018 and 2019, respectively, making them eligible for new buybacks.
• Wipro: Eligible for a new buyback as the 365-day cooling-off period since its last approval in April 2023 has passed.

Beyond IT: Other Regular Buyback Announcers

Other companies known for regular buybacks are also in focus. 

• Ajanta Pharma: With buybacks in 2019, 2022, 2023, and the most recent one in 2024, it cannot announce a new buyback before May 2025 due to its latest board approval in May 2024.
• IndiaMART: Besides bonus shares, it carried out buybacks in 2022 and 2023. With the latest approval on July 20, 2023, it is now eligible for a new buyback.
• Aarti Drugs: Has a history of buybacks in 2016, 2018, 2019, 2021, and 2023. The board approved its last buyback on July 21, 2023, making it eligible for another buyback.

The Buyback Surge

As companies rush to capitalize on the current tax rules before changes take effect on October 1, it will be interesting to see how many join the buyback bandwagon.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.