Stock Buyback Ratio

The stock buyback ratio measures the proportion of a company's earnings or free cash flow that is returned to shareholders through share repurchases, also known as buybacks. It is calculated as total buyback amount divided by net profit (or free cash flow) for the same period. A higher buyback ratio indicates that management is confident in the company's financial health and believes its shares are undervalued. In India, share buybacks are governed by SEBI's Buyback Regulations, which permit companies to repurchase shares through the open market, tender offer, or odd-lot route — subject to a cap of 25% of the company's total paid-up capital and free reserves. Buybacks are tax-efficient compared to dividends for Indian companies — buyback tax is paid at the company level, making the receipt tax-free in the hands of shareholders. Major Indian IT companies including TCS, Infosys, and Wipro have used buybacks consistently to return excess cash to shareholders.