The Securities and Exchange Board of India’s proposal to revive open market buybacks through stock exchanges could lend steady support to shareholders during volatile phases, investment bankers said. It would also give companies a more flexible way to deploy surplus cash as well as support stock prices.
Unlike tender offers, which are executed within a short window of five days, open market buybacks allow companies to purchase shares gradually, creating sustained demand in the secondary market.
“In a volatile market, a buyback through the stock exchange route would send a strong positive signal, reinforce management’s confidence in the company’s intrinsic value, and enhance overall shareholder confidence while providing additional buying interest in the market,” said Sourav Mallik, MD and deputy CEO at Kotak Investment Bank.
Narinder Wadhwa, MD & CEO at SKI Capital Services, said, “Open market buybacks can help provide a steady demand cushion and improve price stability during volatile phases, though their impact is typically gradual compared to tender offers.”
This assumes significance at a time when markets are seeing high volatility as the escalating war in West Asia has increased oil prices and growth concerns. The benchmark indices have lost more than 11 per cent each in March.
Buybacks have remained a preferred capital return tool, particularly for cash-rich companies. In FY25-26, several companies, including Infosys with a ₹18,000 crore buyback, GHCL with around ₹300 crore, eClerx with ₹300 crore, and Bajaj Consumer with around ₹186 crore, have cumulatively deployed well over ₹20,000 crore towards buybacks.
Between April 2018 and March 2023 also (prior to curtailment in buyback size limits for the stock exchange route), around ₹43,000 crore across 86 buybacks were returned to shareholders through the stock exchange route.
Bankers said the recent shift in taxation further strengthens the case for buybacks, as capital gains for public shareholders are now taxed at par with selling stock in the normal course, making it more tax efficient as compared to dividends.
An investment banker, who did not wish to be named, said the route could also change how companies manage market expectations. “This gives companies a way to support the stock without committing to an aggressive one-time price. It’s more about creating a floor and showing confidence over time rather than a sharp re-rating,” the person said, adding that it also allows firms to step in more actively during periods of market dislocation.
“It allows a quick launch of buyback, varies the buyback price over a longer period, and provides flexibility to spread out the purchases over a longer period (based on price, cash flow or macro conditions),” said Mallik. The tender route’s narrow window means “market conditions beyond the company’s control can potentially affect shareholder participation,” he said.
Wadhwa said this adds an important “tactical lever” for corporates. “Companies will continue to balance dividends, tender offers, and buybacks, with open market purchases offering flexibility to deploy surplus cash in a calibrated manner during periods of volatility,” he said.
However, concerns around price discovery and potential misuse persist. “Concerns around price discovery, potential creeping acquisitions, and misuse remain, making robust disclosure norms and regulatory oversight critical to ensure market integrity,” Wadhwa said.
While safeguards such as limits on daily purchases, price bands and restrictions on promoter participation remain in place, bankers said the real test will be in how effectively the framework is monitored in practice.