Sensex Trades in the Green; Wipro Begins Buyback

Wed, 29 Nov 01:30 pm

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After opening the day on a positive note, share markets in India have continued the momentum and are trading in green. Sectoral indices are trading on a positive note with stocks in the realty sector and stocks in the consumer durables sector leading the gains.

The BSE Sensex is trading up by 62 points (up 0.2%), and the NSE Nifty is trading up by 18 points (up 0.2%). Meanwhile, the BSE Mid Cap index is trading up by 0.2%, while the BSE Small Cap index is trading up by 0.5% The rupee is trading at 64.34 to the US$.

In news from stocks in the IT sector. Wipro share price is in focus today, as the IT major kicked off its Rs 110 billion share buyback plan.

Wipro will process the buyback through a tender offer route. An eligible shareholder can tender equity shares in the buyback during the tendering period which is from November 29 to December 13.

India's third largest IT firm is looking to buy back over 340 million fully paid up equity shares at Rs 320 apiece. The buyback closes on 13 December.

The company had earlier set 14 September as the record date for the buyback.

The buyback represents 7% of Wipro's total paid-up share capital and will happen on a proportionate basis through the tender offer route.

At the time of writing, Wipro share price was trading up by 1.1%.

Buybacks Overtake IPOs

A rising market like this one is an excellent opportunity to raise primary capital as most investors get carried away by the market euphoria and IPO hype, which makes them more likely to overlook the underlying fundamentals of the companies offering shares.

Meanwhile, many other companies make the best of the rising markets by extinguishing their liabilities through share buybacks.

Even the market regulator has expressed concern about the amount of share buybacks relative to fresh capital in the domestic market. In the past two years, the quantum of share buybacks has far exceeded the amount of new equity capital raised.

As is evident from the chart, so far this fiscal, India Inc has extinguished shares worth nearly Rs 235 billion through twenty buybacks - 2.3 times more than the Rs 100 billion raised by way of initial public offerings. Similarly, in the last financial year, companies repurchased shares worth Rs 340 billion through 49 buybacks while 25 IPOs had raised Rs 282 billion cumulatively.

In the last two years, buybacks have gained currency as a tool to reward shareholders after the government imposed an additional 10% tax on dividends.

Any dividend received in excess of Rs 1 million is now taxable at a rate of 10% in the hands of the recipient. This is in addition to the Dividend Distribution Tax (DDT) already levied on the company.

The measure - aimed at those receiving significant amounts of dividends - did not go down well with India Inc. Rather than pay dividends, many companies opted to use their surplus cash on share buybacks, which carry no such levy.

With multiple IPO offers lined up, it will be interesting to see if the trend of more buybacks than IPOs continues.

Moving on to news from stocks in the PSU sector. Coal India share price is among the top gainers on the bourses today after the government owned coal miner said that it is planning to pay its executives a Rs 8 billion salary hike. The salary hike is to be retroactive from January 2017.

The executive salary hike comes a month after the company approved a hike in workers' wages. The workers' wage hike is estimated to cost Rs 56 billion over five years.

Coal India employs more than 300,000 people, about 18,000 of whom are executives. As on FY17, employee costs accounted for about 31% of the total expenditure of the company.

Meanwhile, the coal ministry which has formed a search committee for finding a chairman for Coal India has finally invited applications from suitable candidates last week. It has invited applications from armed forces along with central public sector companies, government executives, state and private sectors. The development comes nearly six months after Public Enterprise Selection Board informed the government that it could not find anyone suitable for the position after interviewing six candidates in June this year.

Full time chairman of Coal India, Sutirtha Bhattacharya retired on August 31 following which Gopal Singh, the chairman of Coal India subsidiary, Central Coalfields, was made the temporary chairman of Coal India.

At the time of writing, Coal India share price was trading up by 1.9%.

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