Market players pushing for easier buyback norms

Fund houses, which are seeing a long haul of bear in the equity markets due to YES Bank collapse and global sentiments on the back of coronavirus fears are pressing the government to tweak the rules of share buy-back plans.

Executives from three different fund houses told DH that they have requested the government to look into the issue.

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“The government can allow buyback by promoters in the current market situation without waiting one year from the previous buyback date. Promoters with free cash would love to buy & markets may get the support they need,” one of the executives said.

Currently, a company can’t have a buyback within one year of the previous buyback -- which they want the government to tweak and allow more buybacks.

READ: Where was RBI when Yes Bank was tanking?

This is expected to be a win-win situation for all three market participants: markets, companies, and investors. This, according to them, will give much-needed support to the markets and prevent losses for the investors.

On the other, the companies might find it convenient to conduct a buy-back on moderated stock prices.

By Friday morning, as a sell-off in Nifty50 triggered a circuit breaker for the first time in 12 years, the Indian markets had collapsed by 21% in a week’s time – in one of their worst runs in history.

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However, as markets scrambled to green in noon on back of a push from the domestic fund houses, the losses were pared – but all the gains made by the investors in past three years were wiped off. With the benchmark indices – Nifty and Sensex – down up to 17% from the respective peaks, most of the analysts that DH spoke to expect the long haul of bears in the market.

However, the biggest indicator of market meltdown continuing has come from billionaire investor Warren Buffet: he has been hoarding cash for quite some time now instead of investing in stocks and Berkshire Hathaway’s cash pile up has surged to an all-time high of $128 billion.

The analyst sees this pile-up of cash by Berkshire as just the beginning of equity meltdown, as the Buffett Indicator – which compares market capitalisation as part of national income – has been locked over 100% in the past few years, meaning that stocks are highly overvalued.