Infosys's Rs 18,000 Crore Buyback: Why Its Founding Titans Are Stepping Aside

When a tech behemoth like Infosys announces a colossal Rs 18,000 crore share buyback, it usually sends ripples of excitement through the market. It’s a clear signal of confidence, a promise of enhanced shareholder value. But the plot thickens: the very individuals who nurtured Infosys from a startup into an IT powerhouse – its founding promoters – have strategically opted out of this lucrative opportunity.

This isn't an oversight; it's a meticulously calculated move, steeped in regulatory foresight and a commitment to broader market principles.

At the heart of their decision lies a critical regulatory requirement. As per the Securities and Exchange Board of India (SEBI) guidelines, all listed companies must maintain a minimum public shareholding of 25%.

Infosys's promoters, a venerable list including N.R. Narayana Murthy, Nandan Nilekani, S.D. Shibulal, S. Gopalakrishnan, and K. Dinesh, collectively held a significant 12.95% stake in the company as of June 2022. If they were to tender their shares in the buyback, their substantial participation would inevitably shrink the total public shareholding, potentially pushing it below the mandated 25% threshold.

To avoid such a breach and ensure compliance, their non-participation becomes a necessary and prudent step.

Interestingly, this isn't their first rodeo. Infosys executed a Rs 9,200 crore share buyback in 2021, and the promoters chose a similar path then as well. This consistent approach underscores a long-term strategic vision that prioritizes regulatory adherence and market stability over immediate personal gains from the buyback premium.

It speaks volumes about the founders' commitment to corporate governance and upholding the integrity of the capital markets.

So, why undertake a buyback at all if the founders aren't participating? For the company, a share buyback is a strategic tool to return surplus cash to shareholders efficiently, especially when robust cash flows exceed immediate investment needs.

It also serves to enhance earnings per share (EPS) and improve various valuation ratios, making the company's stock more attractive. It’s a win-win for public shareholders, who get an opportunity to offload shares at a premium and benefit from the boosted financials.

This particular buyback, valued at a whopping Rs 18,000 crore, offered shareholders Rs 1,850 per share – a handsome premium over the then-prevailing market price.

The record date for determining eligible shareholders was set for October 27, 2022. Such an attractive offer is a direct reflection of Infosys’s robust financial health. The company has consistently delivered strong performance, reporting a healthy net profit and double-digit revenue growth across its various segments, demonstrating its resilience and leadership in the fiercely competitive IT services landscape.

In essence, the Infosys promoters' decision to forgo the buyback is a sophisticated maneuver that balances individual wealth management with broader corporate responsibility and regulatory compliance.

It's a testament to the fact that leadership in a publicly traded company extends beyond mere financial returns, encompassing a steadfast commitment to market rules and the collective interests of all stakeholders. It showcases a mature understanding of capital allocation and corporate governance, reinforcing Infosys’s standing as a responsible corporate citizen.