Infosys board will consider a proposal to buy back equity shares at its meeting today, a day after the sudden resignation of Vishal Sikka as CEO.
Infosys chairman R Seshasayee on Friday said the buyback decision will not be affected by Dr Sikka’s resignation. The country’s No. 2 software services exporter said in April that it would return up to Rs. 13,000 crore to shareholders in the fiscal year ending March 2018, adding the manner of the payout will be decided later by the board. IT companies are under pressure to increase shareholders’ return amid slowing growth in their core business. Technological changes like automation and a crackdown on visas in some countries have hurt the overall growth of Indian IT.
In the recent past, other big IT outsourcers have also announced share buybacks. TCS, India’s biggest outsourcer in May this year completed a Rs. 16,000 crore share buyback while Wipro announced a Rs. 11,000 crore share buyback last month.
A share buyback is a tax effective way to distribute accumulated cash to shareholders, thereby increasing their return on investment, analysts say. Infosys had liquid assets (cash and short term investments) of over Rs. 39,000 crore as on June 30, 2017.
Infosys shares tanked nearly 10 per cent on Friday after Dr Sikka’s resignation. The buyback may provide some support to Infosys shares at lower level, said VK Sharma of HDFC Securities.
However, some analysts believe that share buybacks can provide a temporary fillip to the shares of a company, whereas in the long run, share prices will be driven by earnings growth of the company.
Dr Sikka blamed “continuous stream of distractions and disruptions” for his resignation, saying that attacks had become increasingly personal and negative and that the “distractions” were preventing the management’s ability to accelerate the company’s transformation.
Analysts said that that Dr Sikka’s resignation is a setback for the IT major in the near term but they are optimistic that Infosys will overcome the setback. “While in near term it’s a setback for the company, but given the strength of the board of the company, we believe that the company will be overcome the setback,” Sarabjit Kour Nangra of Angel Broking said. The domestic brokerage has a “buy” rating on the stock with a target Rs. 1,179.
Dr Sikka will remain with Infosys as executive vice-chairman, the company said and will hold office until the new permanent chief executive officer and managing director takes charge, which should be no later than March 31, 2018.
Apurva Prasad, analyst at HDFC Securities, said, “There is some level of uncertainty as we wait till the new CEO and managing director comes in, and it does put the company in some form of uncertainty in terms of strategy.” (With Agency Inputs)