Sensex Opens Flat; Infosys Surges 3% on Buyback News

Thu, 17 Aug 09:30 am

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Majority of Asian stock indices are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.26% while the Hang Seng is up 0.05%. The Nikkei 225 is trading lower by 0.08%. US stocks ended Wednesday's session with nominal gains, with Dow Jones Industrial Average surging higher for the fourth day in a row.

Back home, share markets in India have opened the day on a flat note with positive bias. The BSE Sensex is trading higher by 31 points while the NSE Nifty is trading higher by 18 points. The BSE Mid Cap and BSE Small Cap index both opened the day up by 0.2% & 0.3% respectively.

Sectoral indices have opened the day on a mixed note with metal stocks and information technology stocks leading the pack of gainers. While, automobile stocks and bank stocks opened the day in red. The rupee is trading at 64.24 to the US$.

Information technology stocks opened the day on a mixed note with HCL Tech and Infosys witnessing maximum buying interest. As per an article in The Economic Times, Infosys will consider a proposal for buyback of its equity shares at its meeting to be held on 19 August.

The announcement comes close on the heels of the completion of a Rs 160 billion share buyback by rival Tata Consultancy Services (TCS).

One must note that, Infosys, which has cash reserves of about US$ 6 billion on its books, has been under pressure from investors to utilize the amount either through share buyback or generous dividend.

In April, the company had announced that it will pay up to Rs 130 billion to shareholders during the current financial year through dividend and/or share buyback.

Share buybacks typically improve earnings per share and return surplus cash to shareholders while also supporting share price during period of sluggish market condition.

Many major companies offered to buy back their own shares this fiscal. So many that the total value of share repurchase offers hit an all-time high in FY17. Forty-five companies launched buyback programs this financial year, amounting to more than Rs 345 billion.

The number is almost twenty times last year's total of just 18.3 billion.

Buybacks Over the Years

Tanushree Banerjee, Co-head of Research has written everything you need to know about the share buybacks in the IT sector and has offered insights on how the firms deal with the huge cash piles (Subscription Required). Here's a snippet of what she wrote:

• "So, what should long-term investors do? There's no doubt that tendering a part of your shares in a buyback could be a tempting proposition, especially if the buyback price is higher than the market price.
  
  However, it's important to understand that buybacks reduce the outstanding number of shares. Thus, the shareholders who don't tender their shares will end up with a bigger piece of the pie."

Infosys share price opened the day up by 3.1%.

Moving on to the news from banking sector. Yes Bank on Wednesday cut savings deposit rates, joining five other banks that have lowered these rates as liquidity in the system remains high after demonetisation.

Reportedly, Yes Bank will offer 5% on savings deposits worth Rs 0.1 million and less, as compared with 6% earlier. For deposits worth Rs 10 million and above, the bank will offer 6.25%, down from 6.5% earlier.

Further, the interest rate on savings bank deposits between Rs 0.1 million and Rs 10 million will remain unchanged at 6%. The new rates will come into effect from 1 September.

In the last two weeks, State Bank of India (SBI), Bank of Baroda (BoB) and Axis Bank have all reduced interest rates on savings accounts by 50 basis points (bps) to 3.5%.

Notably, Yes Bank had earlier mentioned lowering the savings account rate in line with the system as one of the tools available to them to reach their stated goal of a 4% net interest margin by FY20.

Yes Bank share price opened the day down by 0.1%.

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