Greenlight Open Market Buybacks, but Stay Cautious

Why It Matters

Reintroducing open‑market buybacks could provide companies with an additional lever to support stock prices and signal confidence, helping stabilize a market facing foreign outflows and volatility. The change also aligns tax treatment, promoting equitable participation among shareholders.

Key Takeaways

• SEBI proposes reviving open‑market buybacks after tax reforms.
• Buyback offers fell from 58 in 2022 to just three in 2026.
• Tender‑route buybacks remain available, favored by cash‑rich firms.
• Reintroduction aims to ensure equitable shareholder participation and taxation.
• Analysts see buybacks as potential market stabilizer amid foreign selling.

Pulse Analysis

India’s securities regulator, SEBI, has issued a consultation paper that signals a reversal of the 2025 ban on open‑market buybacks. The change follows a modest overhaul of the tax treatment under Section 115QA, shifting the burden from the company to shareholders and introducing a uniform exemption for participants. Previously, the price‑time matching mechanism left many shareholders unable to partake, while a few could offload large positions without tax consequences. By aligning the fiscal rules with the tender‑offer route, SEBI hopes to restore a level playing field for all market participants.

The suspension of open‑market buybacks has already taken a toll on corporate capital‑return strategies. The number of announced offers dropped from 58 in 2022 to just three so far in 2026, even as Indian equities have endured sharp corrections and heightened foreign‑portfolio outflows. Companies that retain cash, such as Bajaj Auto and One97 Communications, have relied on the tender‑offer mechanism, but the broader market has lost a flexible tool for price support. Restoring the secondary‑market route could enable firms to signal confidence, boost liquidity, and provide a counter‑balance to volatile selling pressure.

Nonetheless, regulators warn that unfettered buybacks can become a conduit for price manipulation. SEBI’s draft emphasizes robust monitoring, caps on daily purchase volumes, and mandatory disclosures to deter promoters from inflating valuations. Investors will also scrutinize the alignment between buyback size and free‑float, ensuring that the activity benefits genuine shareholders rather than a narrow insider group. If the safeguards prove effective, the revived open‑market mechanism could re‑emerge as a strategic lever for capital optimisation, complementing tender offers and enhancing overall market resilience.