Riskless Profit Idea for Retail Investors

Infosys has announced November 1 as record date for its Rs. 13,000-crore buyback.  In this article, the returns that retails investors, and specifically, small shareholders stand to make, will be analyzed.

As per Sebi regulations, 15% of the offer is to be reserved for small shareholders holding shares upto a value of Rs. 2,00,000 as on the record date.  Thus these investors can buy shares till 27-October and below is the chart showing returns on Rs. 2,00,000.

The columns denotes the buying price for the shares.  Since there is time available till 27-October, investors can keep track of buying price and buy depending on availability of funds.  As the table denotes, lower the buying price, higher the return.

infybuyback

The returns are calculated assuming all small shareholders opt for buy back.  In that case buyback will be oversubscribed, and only part of the shares will be bought back.  At June 2017 share holding pattern of various categories of shareholders, for Small Shareholders (below Rs. 2 lakhs) the acceptance ratio works out to 59% . The remaining shares will have to be sold by the investors on their own.  The rows shows profit on selling the ~41% shares remaining after buyback basis the then ongoing price, i.e., post buy back completion.

“Buy Low and Sell High” is the mantra everyone wants to follow.  But the market offers very few opportunities for investors to actually act on such mantra.  The Infosys buyback is one such opportunity and Investors, especially, Small Shareholders need to make the most of it.

There are 2 added things that will spice up the returns.  One is the Acceptance Ratio, which is likely to be higher as not all investors have complete knowledge, time or inclination to study and subscribe for buyback.  Secondly, Infosys is likely to offer dividend along with the upcoming results on 1 November, which is likely to increase the returns.

How can FinArbitrage help


  1. If you are buying Infosys shares with the intention of benefiting from buyback, ensure that all procedures and mechanism are in place so that you can actually tender your shares in the buyback.  If you are not able to tender in the buyback, your returns will be drastically lower or even negative.  For more details please leave a comments below or Contact Us for more details.
  2. Depending on your holding period, the profit will be categorized as Long Term or Short Term.  If holding period is less than one year, then Short Term tax at your Marginal Rate will be applicable.  In order to optimize your returns and taxes, please leave a comments below or Contact Us for more details.
  3. Brokerage and applicable taxes have been factored to arrive at estimated profits in table above.  To know exact returns you are likely to make, please leave a comments below or Contact Us for more details.
  4. If value of your holdings keeps rising, and goes above Rs. 2,00,000 on Record day, then you may not be counted as Small Shareholder. Thus buy requisite quantity, monitor your holdings value, and, offload shares prior to record date as applicable.  To understand more you may Contact Us or leave comments below.

6 thoughts on “Riskless Profit Idea for Retail Investors”

  1. Based on the Offer Letter received from Buyback registrar, the acceptance ratio for Small Shareholder is 28%. This can be taken as Firm Acceptance, i.e., this will be the base minimum quantity that will be accepted in buyback. Investors can, and we would definitely suggest to, offer more in the buyback. Given the procedure and the process around the buyback and lack of knowledge and know how among small shareholders, actual buyback might turn out to be far higher. We are keeping fingers crossed for above 70% buyback for Small Shareholders.

  2. The September 2017 shareholding is out. The exact number of shareholders with sub Rs. 2,00,000 is not clear yet. However there has been an addition of 2.1 lakhs new shareholders. Based on rough estimation the acceptance ratio on full buyback subscription is likely to fall from early estimate of 59% to 25-35%. Thus the gains from buyback have reduced. Please factor in all these new inputs in your analysis. To understand more you may Contact Us or leave comments below.

  3. Well written article! But still few things needs more elaboration. What is cost to enter into infy, given news of buyback is already out? And how much price can dip after buyback? And will this dip on 41% be lower than upside for 59%?

    1. Good question. Given that company is buying 59% for 1150, you will not make a loss unless share goes down to 665. Cost to enter is going up day by day. Last 3 days closing price has been 913, 930, and today is 939. Given everything, at today’s closing price, if price stays the same, one can get 10% in one month. This is assuming 59% buyback. Note TCS buyback still had acceptance of 100% for small shareholders. And Mphasis also had acceptance of 100% for small shareholders. So returns might be higher

  4. Good article. Frankly, some more elaboration with an example would be helpful. I heard buyback will be 60% of yr holding. Is it true.

    To understand the table – If the buy price is 900, sell price is 800, how would the profit me 20256

    1. Yes at current share holding of various categories of shareholders, for Small Shareholders (below Rs. 2 lakhs) the acceptance ratio works out to 59% . This ratio of 59% has been used in the table. The table rows shows profit on selling the ~41% shares remaining after buyback basis the then ongoing price.

      “If the buy price is 900, sell price is 800, how would the profit me 20256”
      Because Infy will buyback 59% of your shares at 1150. So Infy buys 59% at 1150 and you can make that much profit even after selling rest at 800. That’s where it’s riskless profit. Share price generally falls after buyback. But in this case one is protected by a very big margin.

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