The whole idea of buying back shares was triggered when Cognizant decided to return$3.4 billion to its shareholders through a buyback. This decision came in the light of pressure applied by the Elliott Management Group which holds 4% in Cognizant. Subsequently, marquee IT names in India like TCS, Wipro and HCL Tech also announced buybacks. There were two reasons for the buyback. Firstly, when a large company was sitting on piles of cash and had limited opportunities for investment, the logical answer was to reward shareholders either through special dividends or buybacks. Secondly, in the light of the last Union Budget, buyback emerged as a more tax efficient option as dividends above Rs.1 million were liable to pay an additional tax of 10% on these dividends received. This would have been a huge cost on promoters and HNI investors. Hence buyback made more sense.

In the case of Infosys, the company was already sitting on a cash pile of Rs.40,000 crore and the current buyback of Rs.13,000 crore still leaves the company with a huge pile of cash. Also, the Infosys buyback is a lot more complicated. Unlike TCS and Wipro (both of which are substantially owned by promoters), Infosys is a widely held company. It is listed in the US, UK and France apart from India. The revised buyback plan includes a facility for global shareholders holding American Depository Receipts (ADRs) to also tender their shares in the buyback. This was necessitated since more than 54% of Infy shareholding is foreign shareholding.