infosys buyback: Can Infosys buyback offer trigger rally in the stock? History may have a clue

“While the spectre of macro risk remains an overhang, we believe a likely pause in downgrades and the proposed buyback could revive investor interest,” global brokerage CLSA said in a report released today.

Infosys intends to buy back over 5 crore shares, comprising approximately 1.19% of the paid-up capital of the company, from the open market at a maximum price of Rs 1,850 per share.

However, an analysis of the price performance of tier-1 IT stocks before and after the announcement of buybacks shows the lack of co-relation between price gains and buybacks.

“For example, in 11 of the past 14 instances, stock prices performed better in one month prior to buyback vs a month following the buyback announcement,”

said.

For Infosys, this would be the fourth buyback in its history. The last two share repurchases were done via the open offer route and the one in 2017 was via tender route.

The first buyback of Infosys was announced on 16 Aug 2017. The stock gave negative returns of 8.40% a week after the buyback was announced. In 2019, the stock was higher by 8.4% a week after the announcement while 2021 left it with a loss of 3.3% after a week.

“Infosys’s decent Q2 numbers coupled with management comforting demand commentary and margin sustenance despite supply side challenges, allay investor fears in this uncertain global environment. The buyback would support the stock performance in near term amid market volatility,” said Sanjeev Hota, Head of Research, Sharekhan by

.

Domestic brokerage Nirmal Bang pointed out that due to the buyback, ‘other income’ of the IT major goes down in FY24 and beyond, countered partially by lower outstanding equity shares.

While maintaining its sell rating on the stock, it has lowered its target price of Rs 1,153, valuing it at 17.9x on Sept’24E EPS (10% discount to

target PE multiple).

CLSA said its 1-year target price of Rs 1,800, based on 24.5x 12-month forward EPS, is at a 4% discount to its target price for TCS. “We expect the discount to narrow given the likely support to Infosys valuations from the proposed openmarket share buyback,” it said.

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