IT giant Wipro recently announced its largest-ever share buyback on April 16: a ₹15,000-crore offer to repurchase up to 5.7% of its equity. The company has set the buyback price at ₹250 per share, a notable premium to its prevailing market price, and plans to execute the repurchase through the tender offer route, where existing shareholders can offer their shares on a proportionate basis.
Obviously, this news immediately caught investor attention. At first glance, it seems like a good opportunity. But is it really that simple? What exactly is a share buyback, and what does it mean for investors? Here’s a quick explainer.
What is a share buyback?
A share buyback, also known as a share repurchase, happens when a company buys back its own shares from shareholders through a tender or directly on the exchange. This reduces the total number of shares outstanding, thereby increasing the ownership stake of remaining shareholders.
Buybacks are an alternative to dividends. While dividends distribute cash directly to all shareholders, buybacks give investors the option to sell their shares back to the company—often at a premium. They also improve financial metrics such as earnings per share (EPS), since profits are spread across fewer numbers of shares.
How buybacks work in India
There are two common buyback routes in India: tender offer and open market.
- Tender offer: This is the most widely used method in India. Under this route, the company announces a fixed buyback price — typically at a premium to the current market price — along with the maximum number of shares it intends to repurchase. Shareholders are then given a defined window during which they can tender (or offer) their shares to the company for repurchase. A crucial concept here is the acceptance ratio, which determines the percentage of shares that the company actually buys from each participating investor. This ratio is not fixed in advance; it depends on the total number of shares offered relative to the number the company intends to buy. If, for instance, a company seeks to repurchase 100 shares but receives offers for 500, only about 20% of each investor’s shares will be accepted. The process is governed by the Securities and Exchange Board of India, which mandates proportionate acceptance ratio to ensure fairness. At least 15% of the buyback is reserved for small shareholders (with holdings up to ₹2 lakh), often resulting in relatively higher acceptance ratios for retail investors.
- Open market: In an open market buyback, the company purchases shares directly from the stock exchange over a period of time, much like any other market participant.
Unlike the tender route, there is no fixed buyback price or guaranteed exit opportunity for shareholders. Purchases are made at the current market prices and can vary over time, making the process less predictable for investors. As a result, open market buybacks are less about providing a clear participation opportunity and more about utilising corporate funds to increase collective shareholder ownership perhaps in the absence of better options for cash on the balance sheet.
Why do listed companies do buybacks?
Companies undertake buybacks for several strategic reasons.
- Returning excess cash: Buybacks allow firms to distribute surplus cash to shareholders without committing to recurring dividend payouts.
- Signals confidence: When management chooses to repurchase shares, it can indicate a belief that the company is undervalued. This signalling effect is particularly relevant during periods of weak prices, when companies may step in to demonstrate confidence.
- Improves financial metrics: By reducing the number of outstanding shares, they mechanically increase earnings per share and often enhance return ratios.
- Offers flexibility: Dividends create expectations of regular payouts. Buybacks, on the other hand, are discretionary and can be deployed opportunistically depending on market conditions and capital availability.
The taxation of buybacks in India
The taxation of buybacks in India has undergone significant changes over time.
Under the earlier regime (prior to October 2024), companies paid a buyback tax of around 20%, while investors were exempt from tax on the proceeds. This made buybacks highly attractive from a tax perspective.
Between October 2024 and March 2026, however, buyback proceeds were treated as dividend income and taxed at the investor’s income slab rate. This shift reduced the attractiveness of buybacks, particularly for high-income investors.
From April 2026 onwards, the system has moved to a capital gains framework. Non-promoter investors are taxed only on the actual gain — the difference between the buyback price and their purchase cost — bringing buybacks in line with broader equity taxation norms.
Even without their earlier tax advantage, buybacks continue to play an important role in corporate strategy. They still offer the possibility of exiting at a premium, improve financial metrics such as EPS, and provide companies with a flexible alternative to dividends. Just as importantly, they continue to act as a signal of management confidence in the underlying business.
What investors should keep in mind about buybacks
For many retail investors, buybacks (via the tender route) look like a way to make some easy gains, simply by considering the premium between the buyback price and the prevailing market price. But these numbers may not translate into actual returns. Here’s what to keep in mind.
- Acceptance ratio: One of the most important things to consider is the acceptance ratio. Since companies commit to buying only a fixed number of shares, investors are rarely able to offer up/tender their entire holding. The final outcome depends on how many others participate, which introduces an element of uncertainty. A premium that looks attractive can translate into a much smaller return if only a fraction of shares are accepted.
- Taxes: Taxation further complicates the picture. Under the current regime, gains from buybacks are no longer tax-free, and the post-tax return can vary depending on an investor’s status as a promoter or non-promoter. This makes it essential to look beyond headline numbers.
- Post-buyback corrections: There is also the question of what happens after the buyback. Once the tendering process is complete, prices may adjust, sometimes declining as the temporary support from the buyback disappears. Investors who retain a large portion of their shares may therefore be exposed to market risk.
The bottom line
Seen in this light, buybacks are best approached not as guaranteed opportunities, but as tactical ones. They can offer value in specific situations—particularly when the premium is meaningful and the acceptance ratio is likely to be favourable—but they require careful assessment. A useful way to think about them is to weigh the premium on offer, estimate the likely acceptance ratio, consider the tax implications, and account for potential price movements after the buyback. A history of opportunistic, intelligent buybacks may be a good sign that the company takes capital allocation seriously.
Sources
:: Securities Market Investment: Mutual Funds’ Investments : Buyback of Shares | SEBI Investor ::
What is tender offer route in buyback?
Stock Buybacks: Benefits of Share Repurchases
Buyback tax changes: Why selling shares back may hurt your returns | Mint
Symmetry, at what cost? How India’s buyback tax tilts the scales
CNBC-TV18: Do all your shares get accepted in a buyback?