Dalal Street Likely to See a Flurry of Share Buybacks
Cash-rich companies look to return money to investors after government imposed 10% tax on dividend of more than .₹ 10 lakh in Budget; Wipro sets the ball rolling
Mumbai: Investors can expect a flurry of share buybacks in the months ahead from cash-rich companies looking to return some of that money to shareholders. This follows the February 29 Budget imposing a 10% tax on dividend of more than .₹ 10 lakh per year. Wipro announced a buyback on Wednesday, the first company to have done so since April1. Buybacks are another way of giving back cash to investors.
“Considering the three levels of taxation — corporate tax, dividend distribution tax by companies and 10% tax on dividend in excess of .₹ 10 lakh in the hands of the recipients — companies are likely to cut down on dividend distribution and go for buy-
15,474 5,625 5,010 3,245 2,964 2,944 2,899 2,386 2,362 2,082 2,005 1,859 1,687 1,539 1,511 1,447 45,221 2,948 29,934 3,508 34,128 212,923 79,262 19,125 30,655 16,070 61,508 42,508 35,176 76,274 36,899 10,403 Infosys, ICICI Bank, Tata Consultancy Services, HDFC Bank, Bharti Airtel, Cairn and Vedanta have paid between .₹ 1,000 crore and .₹ 5,000 crore as dividends in FY15. Not every company is expected to get on the buyback bandwagon.
“Buyback trend may get traction going forward due to tax efficiency, but those who want to maintain the dividend payout history may stick to paying dividend,” said Saurabh Mukherjea, CEO, Institutional Equities, Ambit Capital. For investors receiving dividend in excess of .₹ 10 lakh per annum, the Budget proposed tax at the rate of 10% of the gross amount in addition to dividend distribution tax.
“In the near term, I feel only those companies in which promoters have substantial stake in their personal names and have failed to announce the dividend before March 31, could go for buybacks,” said Nilesh Shah, CEO, Kotak MF. The best example of the practice of returning money to shareholders through buybacks is Warren Buffet’s Berkshire Hathaway, which has not paid dividends since 1967. But it maintains an aggressive stock buyback policy that puts cash directly into shareholders’ pockets.
Dividend Paid Reserves Cash & Bank Balance 16,503 3,015 7,589 2,538 15,668 11,571 42,305 8,829 3,365 888 36,331 3,532 365 389 1,516 586