SEBI board reintroduces open-market buyback, Pg23

Key Highlights:

• The Securities and Exchange Board of India (SEBI) has reintroduced the mechanism allowing corporates to buy back shares through the open market.
• SEBI Chairman Tuhin Kanta Pandey announced this decision following a board meeting.
• This move was facilitated by reforms in the Union Budget 2026-27, which changed the taxation of buybacks to capital gains tax.
• Open-market buybacks were previously discontinued between 2023 and 2025 due to concerns over taxation.
• SEBI also relaxed procedures for transferring securities of deceased individuals and eased borrowing norms for mutual funds.

Detailed Insights:

• The reintroduction of open-market buybacks offers companies greater flexibility in managing their capital structure and returning value to shareholders.
• Previously, companies faced a tax on buyback proceeds, which effectively distributed the tax burden among all shareholders.
• The shift to capital gains tax aligns the taxation of buybacks with other capital market transactions, promoting a fairer system.
• Before this reintroduction, companies were limited to more rigid buyback methods such as tender offer and book-building.
• Share buybacks are a strategic corporate action often used to enhance shareholder value by reducing outstanding shares and improving earnings per share.
• The relaxed borrowing norms for mutual funds aim to help them manage day-to-day operational expenses more efficiently.

Key Concepts Involved:

• Share Buyback: A corporate action where a company repurchases its own shares from the open market or directly from shareholders.
• Open-market Buyback: A method where a company buys its shares directly from the stock exchange over a period.
• Capital Gains Tax: A tax levied on the profit realized from the sale of a non-inventory asset, such as shares.
• Securities and Exchange Board of India (SEBI): The regulatory body for the securities market in India, protecting investors' interests.
• Union Budget: The annual financial statement of the Government of India, presenting estimated receipts and expenditures for a fiscal year.