TCS buyback: Factors to consider before tendering in your shares

Описание: TCS' Rs. 16,000 cr buyback opens today. Shareholders have the option to tender in their shares at a price of Rs. 3,000/share vs the current price of a little under Rs. 2900. There are 3 aspects to consider: 
1. Taxation
Under buyback, the company has to pay a 20% tax before distributing the money to shareholders. Thus, if a shareholder tenders in shares in a buyback the gains - whether long term or short term - will be exempt under section 10(34a) in her/her hands. However, if sold in the market, the investor will be subject to flat 10% tax on long term capital gain of more than Rs. 1 lac and 15% tax on short term capital gain of any amount. 
2. Profit Opportunity 
15% of the buyback is reserved for retail investors. Currently about 0.5% of the shareholding of TCS is with retail investors. Hemang Jani of MOFSL says that the acceptance ratio will be 40% at best and given the low eligibility, the profit will be small. Additionally, the arbitrage scope has narrowed too given that the share price is already at near Rs. 2900
3. TCS' fundamentals and future prospects
TCS is one of the most expensive stocks at 26x FY22 P/E. Its strong balance sheet, large digital verticals are key positives. Rajesh Gopinathan, TCS' MD & CEO told ET NOW about the high possibility of the company registering double digital growth. The company also has among the best cumulative payout ratios.

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