If there’s a perfect time to launch a share buyback, it’s now. Listed companies are making use of low valuations in the stock market to buy back their own shares. And the main beneficiaries of this exercise are promoters who will see their stakes in their companies going up without spending any paise from their pockets.

If the whole of last year (2007) witnessed only eight share buybacks, the last four-month period (August-November) of 2008 alone saw nearly 24 companies in the market with their buyback plans. “Another 50 companies are getting ready to buy back their own shares,” said a merchant banking source.

According to Section 77A of the Companies Act, 1956, the number of equity shares that can be bought back by a company in any financial year should not exceed 25 per cent of the total paid-up equity capital of the company. Shares bought back by the company should be cancelled, leading to a reduction in capital base, higher earning per share and higher promoter stake.

“There could be three reasons for companies deciding to buy back their shares at this point of time — first, prices are at attractive levels now and the buyback will provide support to the share prices and increase value for share holders when shares will be extinguished. Second reason could be excess cash in the system,” said VK Sharma, head of research, Anagram Stock Broking. “Companies have enough cash but not many avenues to employ it, in such a scenario it makes sense that they buy back their own shares. Third, companies might have bought back their shares earlier at higher prices, so they must be watching the situation to average out the price they have offered for the shares,” he said.

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