Business

How Good is Wipro’s ₹9,500 Crore Buyback Plan for Investors?

Wipro

IT giant Wipro recently decided to start its share buyback programme, which commenced on December 29 and will close on January 11. In November, the shareholders of Wipro approved a buyback plan for the purchase of 23.75 crore equity shares. Each of the shares will be priced at Rs 400 per share which will account for a total amount of Rs 9,500 crores. The buyback is supposed to be made from the existing shareholders on a proportionate basis which will be under the tender-offer route.

According to stock market insiders, since the stocks of major IT firms, including Wipro’s, have performed well on the stock market over the last few months, the shareholders who were waiting for a payout, should look towards tendering their shares. Shares of IT firms have seen a strong period of growth over the last few months due to an increased dependence of people on IT solutions and the trend of expected growth from the IT companies.

Shares of IT companies performed relatively well in comparison to other business shares during the lockdown due to an increased use of digital solutions in everyday life. The leading IT companies have registered high profit growth during the lockdown which has led to a positive trend observed in the stock price of the companies.

If shareholders are interested in bagging cash payout for their shares, they can participate in the buyback. However, according to finance experts, long-term investors should refrain from the buyback as Wipro’s stocks are expected to do well over the long term and reap profits for the investors. Those who plan to keep on investing in the shares are highly unlikely to be in for a shocking loss.

Till now, Wipro stocks have gained by 52.2 per cent while those of its counterparts such as Infosys has gained 67.77 per cent and HCL technologies have gained 60.83 per cent over the course of 2020. Similarly, TCS stocks have gained 34 per cent. Given the rise in stock prices over the past few months, some financial advisors are of the opinion that shareholders should opt for the buyback even though the margin between the offer price and the current price is thin. While the current price is not too far off the scale from the offer price, stock market experts believe that 50-60 per cent of the offer shares may be accepted which will be the fulcrum of the successful execution of this buyback plan. For investors, it will be a wise decision to go sell the shares at the current prices and buy them back when the stock prices fall.

Insiders believe that short-term investors who had bought Wipro’s stocks only to take advantage of a buyback offer can go ahead and tender their share, but the profits made from such an offer can only be determined from the acceptance ratio. However, since the Wipro stocks have underperformed than shares of other IT companies such as Infosys, many experts have advised investors to invest in better performing companies.

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