More and more Indian companies are opting to buy back shares from the open market to stem falling share prices as lower valuations provide an attractive buying opportunity for founders.
Nearly a dozen companies have announced intentions to buy back their shares since February, including India's top listed real estate firm DLF Ltd and tyre cord maker SRF Ltd.
"As management, we feel the stock is substantially undervalued. The market is not giving it the valuation that it should get," said Rajendra Prasad, president and chief financial officer of SRF, which revived its equity buyback plan last week.
SRF shares are down by about a third of their value since the beginning of this year, while DLF has lost about two-thirds.
India's benchmark stock index, which peaked on Jan 10, has since shed more than a third of its value amid concerns of rising global crude oil prices and surging inflation.
"A buyback is a good tool to shore up the promoters' shareholding," said Vikram Sheth, senior vice president of investment banking, ICICI Securities Ltd, the investment banking and broking arm of ICICI Bank Ltd, India's biggest private bank.
"It also sends a strong message to the market indicating that the company believes the stock is undervalued," he added
Two out of three stocks on the BSE 500 index have shed more than 40 percent so far this yea
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