TCS, Infosys had announced a buyback their share price jumped up like crazy.With NTPC a PSU which has announced its share buyback recently lets see will that trend continue here as well.
Before we get into more detail of why a company does a buyback and what price fluctuations can be expected from NTPC stock buyback let us know more about what us a Buyback.
What Is Buyback?
Share Buyback the meaning of if you look it up on google you’ll get a conventional answer that buyback is a when a company repurchases its shares either from the open market or a large institution like D.I.Is or F.I.Is or different investors at different prices.Now as we have understood what buyback is let’s understand why a company would choose to do a share buyback.
Why Buyback ?
- To reduce dilution- Sometimes what happens during a bull market when holders of stock option holders exercise their options causing the shares in the market to increase which reduces the value of shares to reduce this company may choose to exercise a buyback.
- Or if a company feels that the markets have discounted their share in other words if a company feels their share is undervalued they may go for a buy back.
- Companies also sometimes choose to go for a buyback to increase Investor confidence.
How Can Stock Buyback Help Investors?
- One obvious way that Stock buyback by a company is advantageous to the Investor is that with a stock buyback a stock climbs in price as the number of shares reduces in the market making the share more valuable.
- Another way you can benefit is buyback can improve the momentum for the company making a stock more desirable for the investors.
Sometimes They Are Disadvantageous
- Companies that usually go for a buyback can mean less amount a company has for dividends.
- Ratios can get deceiving making the financial analysis of the company tricky as the number of outstanding shares changes.
- Sometimes buyback can also mean the company has surplus cash and has exhausted any other way deploying it or investing in something else that can benefit the company in the long term.
There Are Majorly 3 Types Of Buyback That A Company Can Choose
- Buyback From open market A company can buy shares from the open market meaning a company can choose the price they want to buy the stocks at and buy at different prices or quantity.This type of buyback is good for the company as it is more economical.
- Fixed Tender Price in this way a company can set a tender price and buy in a large bulk or a block deal in this way of buyback the company usually purchases shares from a majority shareholding company like a D.I.I or F.I.I.
- Offer Dutch Auction Price In this a company can buy shares from a variety of investors and other institutions while keeping the market price as the minimum purchase price.
Details Of Recent Buybacks