Why Is Infosys Considering A Share Buyback Now?
About Infosys: Infosys Limited, founded in 1981 and headquartered in Bengaluru, is India’s second-largest IT services company. It provides consulting, digital transformation, cloud, artificial intelligence, and outsourcing services to clients across more than 50 countries. The company is widely recognized for its innovation-driven approach and has played a pioneering role in shaping India’s reputation as a global IT outsourcing hub. As a cash-rich company with stable revenues from diversified clients, Infosys often returns excess capital to shareholders through dividends and share buybacks.
Why Do Companies Buy Back Shares?
A share buyback is a corporate action in which a company repurchases its own shares from the open market or directly from shareholders. By reducing the number of outstanding shares, the company improves earnings per share (EPS) and enhances shareholder value. Buybacks also help stabilize stock prices in times of volatility.
For shareholders, a buyback provides the choice of either cashing out by tendering their shares or continuing as investors with improved ownership value. In Infosys’ case, past buybacks have been well-received by markets and have provided meaningful exits to both retail investors and institutional holders.
How Is A Buyback Taxed In India?
Until March 2024, companies had to pay a buyback tax. However, from April 2024 onwards, the responsibility shifted to investors. Retail investors, promoters, and individuals selling their shares in a buyback are liable to pay tax on their gains, which may go up to 36% depending on their income slab. Mutual funds and foreign investors are generally shielded through exemptions and treaty protections.
Currently, retail investors hold around 14% of Infosys, while mutual funds and foreign institutional investors together own about 72%. The promoter group controls another 14%. This means that a significant portion of tax liability from the buyback process could fall on individual Indian investors.
Why Is Infosys Opting For A Buyback Now?
Infosys is currently sitting on excess cash reserves and follows a stated policy of returning 85% of its free cash flow to shareholders. The company reported free cash flow of $4.1 billion as of March 2025. For comparison, Tata Consultancy Services (TCS) had $5.2 billion, while HCLTech had $2.5 billion. This strong liquidity gives Infosys flexibility to reward shareholders.
Analysts see two primary reasons for this move:
- Management believes the company’s stock is undervalued compared to its fundamentals, making it an opportune time to repurchase shares.
- The absence of immediate large-scale investment opportunities or acquisitions encourages returning excess surplus to shareholders instead of holding idle cash.
How Big Could The Infosys Buyback Be?
Although Infosys has not disclosed the exact figure, Kotak Securities has estimated the size of the buyback at approximately ₹13,560 crore. This comes after its last buyback of ₹19,300 crore in 2023. The announcement lifted Infosys shares by 5% on 9 September 2025. However, despite this rally, the stock has declined 18.5% since January 2025 amid concerns over client spending and the challenges posed by artificial intelligence adoption.
Within the Indian IT services space, other major players like TCS and Wipro have also conducted buybacks in recent years, signaling an industry-wide trend of returning capital to shareholders.
Our Perspective: Should Infosys Focus On Buybacks Or AI Acquisitions?
While buybacks deliver immediate value to investors, Indian-Share-Tips.com believes Infosys should channel part of its massive cash reserves into acquiring AI-first companies in the US and Europe. With artificial intelligence rapidly redefining IT outsourcing, firms that lack cutting-edge AI capabilities risk losing competitiveness. Strategic acquisitions abroad could give Infosys access to intellectual property, talent, and emerging technologies, helping it stay ahead of global peers.
Investing in AI companies would not only create sustainable long-term growth but also diversify revenue streams beyond traditional outsourcing. Unlike buybacks, which are financial maneuvers, acquisitions provide future-ready assets that strengthen business fundamentals. If Infosys misses this window, competitors may seize market leadership in AI-driven IT services.
Investor Takeaway
Infosys’ proposed buyback reflects confidence in its balance sheet and a commitment to shareholder returns. While the move may support stock performance in the near term, long-term investors should also consider the company’s global expansion strategy. In our view, investing in AI firms abroad would generate far higher value creation than repeated buybacks.
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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
