SEBI raises concerns as buybacks exceed fresh equity issuances by 2.3 times

Ajay Tyagi, chairman of SEBI, speaks at a news conference after its board meeting at SEBI headquarters in Mumbai

Capital markets regulator Securities and Exchange Board of India (SEBI) has expressed concern about the high amount of share buybacks in the domestic market compared with fresh capital raising.

"Equity capital raising has been pretty impressive last year. But the amount which went back to investors was 1.5 times that raised. More money is being returned to investors against money raised," SEBI Chairman Ajay Tyagi was quoted as saying in a Business Standard report.

So far this year, companies have bought back shares worth Rs 23,500 crore through 20 buybacks. This was more than 2.3 times the Rs 10,000 crore raised through initial public offerings (IPOs), according to data by Prime Database.

Even though the amount of shares bought back through buybacks by companies last year was more than the amount raised through IPOs, the difference wasn’t as stark. In FY17, companies bought back shares worth Rs 33,391 crore through 49 buybacks, while around Rs 28,225 crore was raised through 25 IPOs.

Shares repurchased through a buyback are extinguished by the company and cease to be a part of the company’s free float (shares available to buy) in the market. On the other hand, IPOs, follow-on public offerings (FPOs) and other forms of equity capital raising add to the free float of a company.

Tyagi acknowledged that this could be indicative of constraints in investment opportunities but with more IPOs lined up, he said it should get better with time. He added that draft prospectuses of IPOs worth more than Rs 50,000 crore have been filed with SEBI so far this fiscal year and that FY18 could see a record amount of IPO mobilisation.