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What are buybacks?
Buybacks is a way for a company to give away excess cash they hold, similar to a dividend but bigger (also no DDT) and it brings us an arbitrage benefit if carefully executed it may even yield year round returns in a few months.
"In the Budget for financial year 2016-17, the government said that income by way of dividend in excess of Rs 10 lakh would be chargeable at the rate of 10% for individuals, Hindu Undivided Family or partnership firms. "
Making buybacks the easiest way for most promoters to get dividends without having to pay up a DDT, theres still a glitch.
However, while such arbitrage may sound like a dream come true because of its small size its barely known to SHNIs but as a retail investor (holding less than 2lakhs) one may make use of a quota of 15% which is reserved for such investors.
Our buyback focused portfolio has made over 18% across the past three years and no not CAGR but in a quarter once each year. A return such that liquid funds, mutual funds or even arbitrage portfolios do not make. Moreover, the exposure is completely hedged in a way making sure no capital decay occurs.
Buyback opportunities for now
The acceptance ratio is only for the retail category shareholding
These are no recommendations for one to invest and hold, however the prices are the ones when we bought these for our clients.
A buyback involves capital being blocked for close to three months thus it is not recommended for people with liquidity constraints, while these are the buybacks that we've invested in there have been many more this year where investors have lost major portions of capital
The company approved a buyback plan of INR 425Cr on the 10th of May' 2018 promising a price of 350 per share only to eventually cancelling it and forcing the price in the open market to sub 100 levels.
The company on its "Capital Allocation Policy" to the exchanges on the 12th Feb' 2018 approved a INR 1000Cr Buy Back plan which was eventually cancelled in June of the same year costing investors way more in capital depreciation than was ever to be gained.
Mutual funds do not have the advantage of using such opportunities.
This post shall not be treated as an investment recommendation.
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