Infosys shares’ 7 per cent fall on Friday to a five-year low was a fresh reminder that the market lacks confidence in any near-term turnaround for the Indian IT companies.

It also sends a clear message not just to the investors who thought IT stocks can’t go much lower, but also to companies and managements intending to use buybacks as a signal to investors.

Just seven months ago, the Infosys management had announced a ₹18,000-crore buyback at a price 56 per cent above current levels, and that too at a time when buyback taxation was onerous.

That decision now appears quite ill-conceived.

Overall, current realities make the sector’s post-Covid buybacks look like misleading signals for investors.

Buybacks are, after all, meant to signal that managements/boards view their shares as undervalued — a message that should carry weight given their insider perspective.

Since Covid, the three IT services giants — TCS, Infosys and Wipro — have together announced deployment of about ₹1.24 lakh crore in buybacks. In most cases, the stocks now trade well below buyback prices.

The pitch was familiar — excess cash, strong confidence and shareholder-friendly capital allocation. The outcome looks less flattering.

Instead of marking undervaluation, many buybacks now look like markers of peak-cycle optimism. While some of the pre-FY24 buybacks may have had an element of tax arbitrage, investors largely read them as value signals.

Tale of 3 behemoths

Start with sector giant TCS, often lauded for its disciplined execution. Announced between October 2020 and October 2023, it conducted three buybacks at ₹3,000, ₹4,500 and ₹4,150, at trailing P/E multiples of 34x, 39x and 30x respectively.

Today, the stock is around ₹2,400, trading at about 18x earnings — implying shares were retired when valuations were roughly double current levels. The result? Investors who did not tender are staring at -20 per cent to -47 per cent drawdowns from buyback prices, with stock CAGRs of -4 per cent to -19 per cent.

Meanwhile, the supposedly boring Nifty 50 delivered 7-14 per cent CAGR over the same periods. Even the Nifty IT index did not see comparable drawdowns. So much for buybacks acting as a valuation floor.

Those who exited through the tender window captured the premium; those who stayed are now absorbing the reset.

Infosys offers a similar, if slightly subtler, lesson in multiple compression. Its buybacks came at ₹1,750, ₹1,850 and ₹1,800, with trailing P/Es of 30x, 26x and 23x. The stock now trades at about ₹1,155, or 16x earnings — 34-38 per cent below buyback prices.

Returns from those levels range from -8 per cent to -36 per cent. From the 2021-22 buyback announcements, the Nifty 50 delivered ~10 per cent CAGR, while Infosys posted negative returns. Investors would have been better off buying the index than relying on “capital return discipline.”

Wipro complicates the narrative, but does not overturn the trend. Its 2020 buyback at ₹200 looks benign in hindsight, with the stock roughly flat.

But the 2023 buyback at ₹222.5 is already 10 per cent underwater, and the 2026 announced buyback price at ₹250 is about 20 per cent away from the current price — hardly evidence of precise timing.

Buffett test

The overall pattern is hard to ignore. These buybacks were executed when a) trailing P/Es were elevated (mid-20s to high-30s) b) digital demand and deal pipelines were peaking, and c) consensus growth expectations were stretched. In other words, valuations were being extrapolated, not discounted.

By the classic Warren Buffett test — that buybacks add value only when done below intrinsic value — these programmes look mistimed. Unfortunately, these buybacks were also cheered by many analysts.

So as with any case of irrational exuberance, what followed was predictable, if not forecasted. Growth moderated, discretionary tech spending slowed, and AI introduced a fresh layer of uncertainty into the services model.

The result was multiple compression from ~30x to mid-teens and that did most of the damage.

There is also the question of opportunity cost. The ₹1.24 lakh crore spent on buybacks could have funded years of investment in AI capabilities, platforms, and acquisitions — areas where the sector is now scrambling to catch up.

Alternatively, at least returning it as dividends would have ensured the money reached all shareholders rather than benefiting only those who tendered.

For investors, the takeaway is clear: a buyback, especially at elevated valuations, is not a signal of undervaluation.

Published on April 25, 2026