TCS repurchase looks attractive...

The fortunes of information technology (IT) stocks haven’t been remarkable for some time. Some of these stocks have taken a serious hit and performed way below the benchmark index – the BSE Sensitive Index or Sensex.

For example, the Sensex’s one-year return stands at 20.9 per cent whereas among the top IT stocks, only Tata Consultancy Services (TCS) and Tech Mahindra have given positive returns of eight per cent and 15 per cent in the past year. Infosys, HCL Technologies and Wipro are all down. Even over three years, the Sensex has gained 39.6 per cent. By contrast, only TCS and HCL Technologies have given positive double-digit returns in this period at 14.3 per cent each.

Against this backdrop, the decision of the TCS board of directors to go for a ~16,000crore buyback augurs well for the retail investor. The buyback, which will be carried out at the price of ~2,850 per equity share — 13.7 per cent premium to Monday’s closing price — means there is a good amount that the investor stands to earn.

Market experts, obviously, are of the view that it is a good opportunity for retail investors because the scrip may not see such a price soon. “Investors should take the opportunity to sell their shares because the premium is quite good. Later, they can always buy the shares from the market,” says Deven Choksey, managing director, K R Choksey Investment Managers.

Adds Umesh Mehta, head of research, Samco Securities: "Basically the buyback offer has created an arbitrage opportunity which all investors should avail of." He says that the tender route is much more shareholderfriendly than the market route.

According to Rajesh Cheruvu, head of equities, Sanctum Wealth Management, individual investors comprise 3.8 per cent of overall shareholders. Investors who hold 70 or less shares qualify as retail investors. According to Sebi norms, 15 per cent of ~16,000 crore, which amounts to ~2,400 crore, has to be set aside for them. “My sense is that around 15 per cent of individual investors, or 0.5 per cent of overall shareholders, would be retail (small) investors. Their market cap at current prices is ~2,460 crore, whereas the amount that is being set aside for them is ~2,400 crore. Effectively, 85-100 per cent of their existing holdings could be accepted on submission.”

According to Arun Kejriwal, founder, Kris Research, investors who own shares worth more than ~2 lakh need to analyse whether to tender them or sell in the open market. "Usually, after a buyback offer is announced, shares of the company rise as the offer date approaches. Investors can also benefit from selling in the open market," he says.

Investors will have to tender their shares to their brokers. TCS will buy the shares from the brokers and money will be credited into brokers' accounts. "If you have held the shares for more than a year, the capital gains tax will be zero, and if you have held the shares for less than a year, the gains will be taxed at 15 per cent," said an expert. Perhaps, it is time for other IT firms to follow.

Investor stands to earn a good amount from TCS buyback, which is at ~2,850 per share, a 13.7% premium to Monday’s closing price