Wipro has announced a buyback worth Rs 10,500 Crores. The Wipro buyback is for 32,30,76,923 at Rs 325. This represents nearly 5.35% of the company’s equity. In 2016, the company had done a buyback for Rs 2,500 Crores and in 2017 it did a buyback for Rs 11,000 Crores. The buyback type is through the tender route.
Buybacks create an arbitrage opportunity for retail shareholders. SEBI’s guidelines on buybacks through the tender route stipulate a 15% reservation for retail shareholders. Those with less than Rs 2 Lakhs holding on record date are considered retail shareholders. Simple calculations and assumptions can show us the probable returns from this buyback. In 2017, we made ~ 10% over 5 months in the Wipro buyback and later also made a similar return in the HCL Tech buyback in 2018. The acceptance ratio decides the return that shareholders can make from the buyback.
If not the buyback, you could park your funds somewhere else. Liquid funds are the lowest risk asset class available for such a short duration and over 4 months, these funds give close to 2.2%. Considering the moderate risk in this buyback trade, investors might expect around 5% returns over 4 months.
The expected acceptance rate for Wipro is > 90% and thus investors have an opportunity to make ~ 10% to 15% returns (depending on what price they buy the shares). The buyback process takes 4 to 5 months. But, the return and the probability of high acceptance rate makes it a good opportunity with relatively low risk.
How much to invest?
The maximum you can invest to qualify as a retail investor is Rs 2 Lakhs (as per valuation on record date). Investors should try to invest at a price lower than Rs 310 to earn a 5% return. However, the cheaper you can buy it for the better your returns will be. If you are invested in liquid funds or are holding cash in your portfolio, then this buyback offers a great investment opportunity.
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