Investors rush for TCS buyback: Should you join the bandwagon?

Share buyback programme of Tata Consultancy Services has seen record participation by investors.
With just four days into the offer, investors have tendered 2.9 milliion shares, according to exchange data, beating the previous best of 0.19 million shares.

Individual investors and qualified institutional buyers led the fourth day of buyback window. Individual investors have tendered over 1.9 million shares, whereas qualified institutional buyers have tendered over 0.97 million shares.

The 14-day long buyback offer is priced at Rs 4,500 per equity share for shares worth Rs 18,000 crore. This is TCS’S fourth and biggest buyback in the past 5 years. 
We spoke to AK Prabhakar of IDBI Capital to understand whether investors should pare their shares?
 
And not just TCS, analysts are bullish on the entire sector as a depreciating rupee supports IT companies that make most of their revenues servicing clients in the overseas market.

Vinod Nair of Geojit Financial Services says the stock enjoys twin benefits of attractive valuation, which is 29 times forward PE of one year, a premium valuation compared to its five-year average of 23 times, and overall tailwinds for the industry.

Coming back to TCS, an important aspect of buybacks is the acceptance ratio.
Simply put, an acceptance ratio is final ratio which indicates the total number of shares accepted in the buyback. If in a category, the total buyback tendered quantity exceeds the buyback size, the acceptance ratio will be lesser.
If the buyback tendered quantity is less than the buyback size, then the acceptance ratio will be 100%.

Historically, TCS has seen 100% acceptance in all the three buybacks.
During the last two buybacks, the market price of the company was on a rising trend and close to the buyback price on the last day of tendering. This time, though, there is a gap between the buyback price and the market price.
Given this, HDFC Securities believes the likely acceptance ratio could be between 45-70 per cent.

Meanwhile, Motilal Oswal expects the acceptance ratio to be in the range of 30-50 per cent, which could give a potential return of 5-9 per cent within one to two months.
 
Market analyst Vinod Nair recommends short-term investors to consider the buyback offer due to high acceptance ratio from a historical perspective. On the other hand, he advises long-term investors to hold on to the stock with a positive outlook.

Against this backdrop, investors will track the IT giant’s buyback on Tuesday.
That apart, investors will also track the US Federal Reserve’s two-day monetary policy meeting, OPEC’s monthly output report, Euro Zone’s Industrial Production data and newsflows around the Russia-Ukraine crisis.

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