Buyback share

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Querist : Anonymous

Querist : Anonymous (Querist)

10 January 2014 please give some information about buyback shares.

P V Ram

P V Ram (Expert)
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10 January 2014 Initially buyback of shares was not permitted by Indian laws as it amounts to reduction of share capital. Now the buyback of shares is permitted subject to compliance of certain guidelines of the Government and as per the provisions of the Companies Act.
Buyback is done under two methods Viz., tender method and / or open purchase from market method. The company, under the tender method, offers to buy back shares at a specific price during a specified period which is usually one month. Under the open market purchase method, a company buys shares from the secondary market over a period of one year subject to a maximum price fixed by the management. Companies seem to now have a distinct preference for the open market purchase method as it gives them greater flexibility regarding time and price.
Due to buyback, the P/E ratio may change. The P/E ratio may rise if investors view buyback positively or it may fall if the investors regard buyback negatively.

Thanks!