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Sensex Ends Day in Green, L&T Buyback, and Top Stocks in Action
Tue, 22 Jan Pre-Open

On Monday, share markets in India opened on a positive note and ended the day in green after an optimistic day of trading.

The BSE Sensex closed higher by 192 points to end the day at 36,579. While the broader NSE Nifty ended up by 55 points, to end the day at 10,962 points.

Among BSE sectoral indices, realty stocks rose the most by 1.5%, followed by telecom stocks at 1.2%. Axis Bank and Tata Motors were among the top gainers.

Top Stocks in Action Today

L&T share price as the markets regulator denied approval to the company's Rs 90 billion share buyback plan.

As per an article in a leading financial daily, the buyback was rejected, citing compliance issues over its post-buyback debt-equity ratio.

Wipro share price is likely to be in focus today as the company lowered margin guidance for its IT services business in the range of $2,047 million to $2,088 million for the March quarter, which translates into a flat 2% sequential growth.

The IT company on Friday posted a strong 31.8% YoY jump in its consolidated net profit at 25.4 billion and announced a 1:3 bonus share offer.

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Buybacks Galore: How to Make the Best of This Trend?

The number of buyback offers in 2017-18 were at an all-time high. Never, in the last two decades, had Indian markets seen fifty-nine companies announcing buyback plans.

But what is truly surprising is that unlike in the past, the buybacks this time seem skewed in favour of short term investors rather than long term ones.

Here's what Tanushree Banerjee, Co-head of Research at Equitymaster, wrote about it in The 5 Minute WrapUp...

  • Look at the history of buybacks since 2002. Logically promoters should offer to buyback shares at a premium when the stock is undervalued. And this logic held true until recently. The number of buybacks peaked when market valuations were low. And in times of peak valuations (like 2007 and 2011), promoters refrained from doing so.

    But not this time. The trend of rising buybacks in the last two years, resembles the sentiment of a momentum investor. The appetite to buy shares kept rising with the rising markets. And the latest buybacks of stocks like TCS and MOIL, came at a time, when neither the broader index (Sensex) nor the stocks themselves, are undervalued.

At Equitymaster, we believe, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

As per Rahul Shah, co-head of Research, investors should not assume buybacks are always good. Here's an excerpt of what he wrote in one of the editions of The 5 Minute Wrapup:

  • The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace.

The topic also brings us to ask: Do buy-backs offer an arbitrage opportunity for retail investors? Ankit Shah has answered this question in one of the editions of Equitymaster Insider. You can access the issue here (requires subscription).

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