How to benefit from TCS share buyback

Posted on by

Tata Consultancy Services (TCS) has announced a buy back of up to 4.10 crore fully paid-up equity shares at ₹4,150 a share for an amount equivalent to ₹17,000 crore. It will represent 1.12 per cent of the total paid-up equity share capital.

This is TCS’ fifth buyback of shares in the last six years. 

Prashanth Tapse, Research Analyst-Sr VP Research, Mehta Equities Ltd, said, “Short-term traders can buy TCS before record date (Nov 25) and use the opportunity to generate decent returns based on assumed entitlement ratio.”  

Based on the buyback rate of ₹4,150, short-term investors can generate 18 per cent return on investments at ₹3,519. However, as the stock is currently ruling at ₹3,498 that may skew the calculation to that extent.

In addition, investors can get tax benefits as the income generated from this buyback of shares is tax exempted, he added

In a note, Cholamandalam Securities advised an investment of ₹3,51,700 (100 shares at ₹3,517). Minimum number of shares that will be bought back three shares and profit on accepted buyback would be ₹1,900. However, investors should note that at the current market price (₹3,498), the profit will vary.

According to Chola Securities, any upside on per share price (from ₹3,517) will be add-on profits, while any slippage below ₹3,475 will result in portfolio loss. I