(The Hindu Busienss Line 25th April 2008)
More buybacks of shares have been announced during the four months of 2008 than the full-year of 2007, when there was a bull run in the market.
So far, eight companies — Reliance Energy, Great Offshore, Sasken Communications, Surana Telecom, Madras Cements, Patni Computers, Gujarat Flourochemicals, Polaris Software Lab — have announced buyback plans.
Against this, there were only two prominent buyback announcements last year. The big correction in stock prices, during the recent market meltdown, seems to have prompted the buyback plans. “These companies are sending signals that their intrinsic value is more than what is indicated by their market price. I would not be surprised if there are more buybacks,” said Mr Srinivasan Subramanian, Head, Investment Banking, Enam Financial Consultants.
“Buyback indicates that there is fair amount of value in the company shares and reflects companies own perspective of the business in the next 2-3 years,” said Mr Nipun Mehta, Co-founder & CEO, Unitis Tower Wealth Association, adding, “it is clearly driven by the value of the shares compared with existing market price.”
“Whether the ROE (Return on Equity) post the buyback improves or not is the true test of a buyback,” said Mr R. Balakrishnan, Executive Director, Centrum Broking. “Otherwise it may not be best for the shareholders but benefit one set of shareholders only.”
In most of the instances of buyback this year, the share prices of the scrips concerned have indeed risen over the last month. Gujarat Fluorochemicals, Patni Computers, Reliance Energy and Great Offshore have gained between 11 per cent and 25 per cent during that period.Official announcement
In case of Madras Cement, where the buyback was completed on April 4, the price rise has been just over four and a half per cent over the last one month. Official announcement of a possible buyback also typically sends a stock up.
In some cases their share prices began to move up much before the official announcements of buyback. In the case of Polaris Software Lab, whose buyback plan was being considered, according to the company notification on the BSE of April 17, the stock had gone up by 40.88 per cent during the month up to April 23. However, after the buyback was deferred on April 23, the stock fell 6.26 per cent.
The buyback announcement appears to be considered by some select investors as a short-term investment opportunity, as evident from the movement in Sasken as well as now Polaris stocks. Sasken moved up 44.52 per cent in the preceding fortnight before the buyback announcement came on April 10 and Polaris moved up by 14.53 per cent during the same period before the announcement on April 15. Sasken and Polaris stocks have moved up by 114 per cent and 40.88 per cent respectively in the past one-month period.
More buybacks of shares have been announced during the four months of 2008 than the full-year of 2007, when there was a bull run in the market.
So far, eight companies — Reliance Energy, Great Offshore, Sasken Communications, Surana Telecom, Madras Cements, Patni Computers, Gujarat Flourochemicals, Polaris Software Lab — have announced buyback plans.
Against this, there were only two prominent buyback announcements last year. The big correction in stock prices, during the recent market meltdown, seems to have prompted the buyback plans. “These companies are sending signals that their intrinsic value is more than what is indicated by their market price. I would not be surprised if there are more buybacks,” said Mr Srinivasan Subramanian, Head, Investment Banking, Enam Financial Consultants.
“Buyback indicates that there is fair amount of value in the company shares and reflects companies own perspective of the business in the next 2-3 years,” said Mr Nipun Mehta, Co-founder & CEO, Unitis Tower Wealth Association, adding, “it is clearly driven by the value of the shares compared with existing market price.”
“Whether the ROE (Return on Equity) post the buyback improves or not is the true test of a buyback,” said Mr R. Balakrishnan, Executive Director, Centrum Broking. “Otherwise it may not be best for the shareholders but benefit one set of shareholders only.”
In most of the instances of buyback this year, the share prices of the scrips concerned have indeed risen over the last month. Gujarat Fluorochemicals, Patni Computers, Reliance Energy and Great Offshore have gained between 11 per cent and 25 per cent during that period.Official announcement
In case of Madras Cement, where the buyback was completed on April 4, the price rise has been just over four and a half per cent over the last one month. Official announcement of a possible buyback also typically sends a stock up.
In some cases their share prices began to move up much before the official announcements of buyback. In the case of Polaris Software Lab, whose buyback plan was being considered, according to the company notification on the BSE of April 17, the stock had gone up by 40.88 per cent during the month up to April 23. However, after the buyback was deferred on April 23, the stock fell 6.26 per cent.
The buyback announcement appears to be considered by some select investors as a short-term investment opportunity, as evident from the movement in Sasken as well as now Polaris stocks. Sasken moved up 44.52 per cent in the preceding fortnight before the buyback announcement came on April 10 and Polaris moved up by 14.53 per cent during the same period before the announcement on April 15. Sasken and Polaris stocks have moved up by 114 per cent and 40.88 per cent respectively in the past one-month period.
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