The Hidden Power of Buybacks: What Every Investor Should Know

A buyback, also known as a share repurchase, is when a company purchases its own shares from the marketplace. There are several reasons why a company might choose to buy back its shares:

1. Increase Shareholder Value: By reducing the number of outstanding shares, a buyback can increase the value of the remaining shares. This is because the earnings per share (EPS) typically rise, which can boost the stock price. 

2.  Use of Surplus Cash: If a company has excess cash and doesn't see better investment opportunities, it might use that cash to buy back shares. This can be a way of returning capital to shareholders without paying dividends.

3. Tax Efficiency: In some cases, buybacks are more tax-efficient for shareholders than dividends, especially if capital gains are taxed at a lower rate than dividends.

4. Signal of Confidence: A buyback can signal to the market that the company’s management believes the stock is undervalued, which might encourage more investors to buy the stock.

5. Prevent Takeovers: By reducing the number of shares available on the open market, a company can make it more difficult for another entity to acquire a controlling stake.

After a buyback, the repurchased shares are typically retired, which means they are removed from circulation and are no longer counted as outstanding shares, though sometimes they are held as treasury shares.

How to apply for buyback?

Applying for a share buyback usually involves the following steps:1. Announcement of Buyback

• The company will announce a buyback, specifying details such as the number of shares it intends to repurchase, the price or price range, and the timeline.