Last week, Tata Consultancy Services (TCS)—India’s largest software company by revenue and its second largest by market capitalisation—concluded its Rs 18,000 crore ($2.4 billion) share buyback. It received a roaring, rockstar-like reception, and was oversubscribed 8.5X. With good reason. The offer price of Rs 4,500 ($60) a share was at a tidy premium of ~20% to the current market price. 

TCS may have hogged the limelight in India for its mega-sized share buyback, the country’s largest so far. But globally too, a massive buyback wave is making its way to the shores of stock markets. Many companies, flush with cash, seem to be taking advantage of the volatility and weakness in the stock markets over the past few months to repurchase their shares. Amazon, Alibaba and a host of others have planned big repurchases in 2022. They could set a new record even, with analysts and investment banks such as Goldman Sachs Goldman Sachs The Wall Street Journal Stock Buybacks Are on Course for Another Record Read more forecasting $1 trillion in buybacks by S&P 500 S&P 500 S&P 500 The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. companies this year. Buybacks, after all, help them kill many birds with one stone.

Managements often use buybacks to signal their confidence in the prospects of the company and its stock price. They’re also handy tools for distributing excess cash to shareholders in a tax-efficient manner. And with repurchased shares required to be extinguished, buybacks improve financial metrics such as earnings per share (EPS) earnings per share (EPS) earnings per share (EPS) Earnings per share (EPS) is the net profit of a company divided by the number of equity shares. and return on equity (ROE) return on equity (ROE) return on equity (ROE) Return on equity (ROE), a measure of profitability, is the net profit of a company divided by its total equity including reserves and surplus. The higher the ROE, the more profitable the company on the remaining shares. This, in turn, aids their valuation multiples and the share price.

It’s not all rosy, however. Buybacks are also criticised for not plowing money back into the business for future growth and for being a tool to manipulate stock prices and financial metrics linked to the compensation of executives.