Buyback offers do not guarantee any surge in share price though Reliance Industries stock price jumped after the company announced its buyback plans on Wednesday. Of the 15 issues, where the buyback window is currently open, 14 companies share price are trading much below the maximum price offered by the company. For instance, Reliance Infra whose fourth buyback window is currently on is quoting at Rs 441.35 against a maximum price of Rs 725 a share offered by the company. Borosil Glass today closed at Rs 850, the maximum price offered by the company in its buyback offer.
Apart from Reliance Industries, Kirloskar Oil Engines also today said that its board is meeting on January 25 to consider buyback. However, the Kirloskar Oil stock slipped 0.29 per cent at Rs 138.95.
“This situation usually happens when medium and small cap companies announce a buyback just to get their share prices up but after the stocks are up by five to ten per cent we suddenly witness massive selling in the stock,” said a strategist with a brokerage house.
But theReliance Industries stock sizzled at the stock markets to rise by 4.94 per cent and close at Rs 776.9 on Wednesday following the announcement.,
Some analysts are of the opinion that the positive sentiment would prevail and pull the company's share price over a period.
“Reliance quarterly results are expected on January 20 and everyone is expecting a decline in net profits and lower growth for RIL given the pressure on their refinery margins so all the negative news has already been discounted and therefore buyback is good for an upside trend. It would provide a trigger for buying and give boost to their stock price, which has been badly hammered down lately,” said the head of research of a brokerage house.
“The industry would be looking for figures from Reliance Industries therefore we can definitely expect some fireworks and some more buying interest in their stocks. If small and medium investors see the company promoters go in for a buyback they feel they too should go in for buying it,” he added.
Experts caution investors to not get carried away on buyback announcements and rush in but instead weigh the results and performance of the company as the base fundamental.
“Buybacks are only an added incentive, not a base case scenario," said Mr Jagannatham Thunuguntla of SMC Global.