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Wipro buyback could offer arbitrage gains of up to 8%

Many small shareholders did not take part in recent share buybacks.

, ET Bureau|
Updated: Apr 23, 2019, 08.33 AM IST
Wipro’s share buyback offers an arbitrage opportunity for small shareholders if the trade is initiated around the current price, according to analysts.

India’s third-biggest software exporter announced a Rs 10,500-crore share buyback on April 16. The company will buy back 32.31crore shares constituting 5.35 per cent of its equity through a tender offer at a price of Rs 325 per share. The buyback price is at a premium of 13 per cent over Monday’s closing level of Rs 288.25 per share.

“Even assuming a 75 per cent acceptance ratio and a market price of Rs 260 post the payout, investors can earn an absolute return of nearly 8 per cent over the next 150 days,” said Atul Karwa, analyst at HDFC Securities. “Investors looking for a short-term opportunity can buy the shares up to the value of Rs 2 lakh – as on the record date and till the stock goes ex-benefit in the open market and offer them in the tender offer.” The company is yet to announce the record date for the buyback.

Wipro snip 2

Many small shareholders did not take part in recent share buybacks, resulting in a rise in acceptance ratios.

“We believe Wipro’s buyback would be a good opportunity for retail investors to tender their shares in the buyback programme and also could be a tactical opportunity for investors for short-term investment gains,” said Sanjeev Hota, head of research at Sharekhan. “Looking at the impressive acceptance ratio of almost 100 per cent in last buyback programme in 2017, we expect the acceptance ratio to remain higher this time also and expect 10-12 per cent pre-tax arbitrage opportunity.”

As per the FY 2018 Annual Report, there were 2,63,566 shareholders holding up to 5,000 shares of Wipro. Analysts said the chances are high that all shares tendered by retail investors would be accepted. However, this could change depending if more investors buy shares between March 31, 2018, and the record date.

HDFC Securities said every 5 per cent increase in acceptance ratio by Wipro could improve annualised return by 2.7 per cent per annum. But, for every .Rs Rs10 fall in after the buyback, the annualized returns will fall by 1.7 per cent, the brokerage said. Wipro has guided for a lower revenue growth for the June quarter.

Also Read

Making good the giving pledge: Premji sells Rs 7,300 crore shares in Wipro buyback

Wipro buyback may act as a support in short to medium term: Mayuresh Joshi, Angel Broking

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