Shares of Infosys surged nearly 4 per cent on Wednesday, a day before the opening of the tender window for its Rs 18,000-crore share repurchase programme.
The buyback, which will see the company repurchase 100 million outstanding shares at Rs 1,800 each, will remain open until November 26.
The shares last closed at Rs 1,541, making the buyback price a premium of around 14 per cent over the last close.
Despite this attractive premium, recent changes in the tax structure on buybacks could deter many wealthy shareholders from participating.
According to the shareholding pattern as of the record date, November 14, small shareholders are entitled to tender two equity shares for every 11 shares held.
For the general category, the entitlement ratio is 17 shares for every 706 held.
However, experts suggest that the acceptance ratio may be higher.
Small shareholders are defined as those holding shares worth not more than Rs 2 lakh.
Axis Securities, in a recent note, expects overall participation by retail investors to be muted, but describes the buyback as a “lucrative opportunity” for small shareholders. Under the new tax rules, the buyback proceeds will be treated as dividend income and taxed according to individual slab rates.
Meanwhile, the cost of shares bought back by the company will be recognised as a capital loss by the shareholders, which can be offset against other capital gains.
If capital gains are insufficient to absorb this loss in the current year, it may be carried forward for up to eight years to offset future capital gains.
This buyback marks Infosys' largest-ever share repurchase, representing about 2.41 per cent of its paid-up equity capital.
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