Promoters see buyback opportunity in troubled times
Bad times can also throw up a few opportunities. Lured by a steep fall in the stock price, many companies are buying back their shares — a transaction aimed at setting a floor price in a declining market. But in the process, it also leads to a hike in promoter holdings in the reduced equity pool. A handful of companies have announced their buyback plans and more will follow.
Gujarat Fluorochemicals on Monday said it would buy back up to 10% of its equity capital from the market. Two other firms — Great Offshore and Prithvi Information — have called board meetings to consider buyback proposals, while some including Goldiam International, Patni Computers, Reliance Energy and Madras Cements have already announced their buyback plans.
Sun Capital head of corporate resources Dalpat Mehta said buybacks are aimed at stabilising the stock price. “This instill confidence among investors and conveys that the management is confident of the company’s growth prospects ,” he said.
An analyst with a foreign brokerage said the recent market mayhem has brought many fundamentally strong companies down to attractive levels. He said Great Offshore, for example, slipped nearly 40% in the past one month when the Sensex slipped 13%. “This is a good buy at the current level,” he said.
The news of the company’s board meeting next week pulled up the stock to the day’s high of Rs 651. However, it closed flat at Rs 591. Post buyback, the promoters stake will go up, albeit marginally, from the current level of 20.5%. Great Offshore managing director Vijay K Sheth declined to comment on the issue. “Mr Sheth will talk to the press only after the board meeting,” his office told Economic Times
