What is Buyback of Shares?

A buyback can be seen as a method for company to invest in itself by buying shares from other investors in the market.

Buybacks reduce the number of shares outstanding in the market. Buy back is done by the company with
the purpose to improve the liquidity in its shares and enhance the shareholders’ wealth. Under the SEBI (Buy Back of Securities) Regulation, 1998, a company is permitted to buy back its share from:

a) Existing shareholders on a proportionate basis through the offer document.
b) Open market through stock exchanges using book building process.
c) Shareholders holding odd lot shares.

The company has to disclose the pre and post-buyback holding of the promoters.

To ensure completion of the buyback process speedily, the regulations have stipulated time limit for each step. For example, in the cases of purchases through stoc k exchanges, an offer for buy back should not remain open for more than 30 days.

The verification of shares received in buy back has to be completed within 15 days of the closure of the offer.
The payments for accepted securities has to be made within 7 days of the completion of verification and bought back shares have to be extinguished within 7 days of the date of the payment.

Which are the factors that influence the price of a stock?

Broadly there are two factors: (1) stock specific and (2) market specific. The stock-specific factor is related to people’s expectations about the company, its future earnings capacity, financial health and management, level of technology and marketing skills.

The market specific factor is influenced by the investor’s sentiment towards the stock market as a whole. This factor depends on the environment rather than the performance of any particular company. Events favorable to an economy, political or regulatory environment like high economic growth, friendly budget, stable government etc. can fuel euphoria in the investors, resulting in a boom in the market. On the other hand, unfavorable events like war, economic crisis, communal riots, minority government etc. depress the market irrespective of certain companies performing well. However, the effect of market-specific factor is generally short-term. Despite ups and downs, price of a stock in the long run gets stabilized based on the stockspecific factors. Therefore, a prudent advice to all investors is to analyses and invest and not speculate in shares.