TCS promoters hold 71.92%stakese in the company. The stock traded at Rs 1,841, up 3% in the afternoon trade on Friday when the news broke, which lifted the company’s market cap back to Rs 7 lakh crore.
The announcement follows a similar share purchase done by the company last year. Last year, TCS had undertaken a Rs 16,000-crore mega buyback offer, entailing 5.61 crore shares at a price of Rs 2,850 per scrip. During its Q4 FY2018 earnings call, TCS CEO Rajesh Gopinathan had said the company’s intention is “to keep capital return close to 80-100% of annual free cash flow”.
Indian IT companies, last year, bought back shares in a bid to return excess cash to shareholders. Infosys and Wipro had also come out with buyback offer of Rs 13,000 crore and Rs 11,000 crore last year respectively.
TCS and other IT companies have been under pressure from investors to return excess cash to shareholders if they were not using funds for acquisitions. Early February, Cognizant Technology Solutions announced a dividend payout and a share buyback of $3.4 billion, bowing to pressure from activist investor Elliott Management.
Moreover, the $150-billion Indian outsourcing sector is facing an uncertain outlook in the US, its biggest market, following the Trump administration’s move to tighten visa norms.
Buyback is a tax-efficient means of returning cash to shareholders as compared to doling out dividends. TCS said that the buyback size of Rs 16,000 crore doesn’t include any expenses incurred for the share repurchase. Under the Union Budget, a shareholder who receives dividends in excess of Rs 10 lakh will have to pay a higher tax.