Finshots Daily
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In today’s episode on 16th September 2025, we ask: are stock buybacks really value creation or just short term applause?
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Hello folks, you're tuned into Finshots Daily. And in today's episode, we ask, are stock buybacks really value creation or just short term of loss? Before we begin, here's a quick word from team Dito. Life can be unpredictable and if the main earner is not around, the bills won't stop. That's why term insurance is so important. It gives your family a fixed payout so they can cover school fees, EMIs and daily expenses without stress. If you buy it early, you can get a one crore cover for as little as thousand rupees a month and the premium stays the same for your entire policy term. That's real peace of mind at a very small cost. And if you're not sure which plan is right for you, book a free call with Dito. No spam, just honest guidance.
And we're trusted by over 8 lakh people for their health and term insurance needs. Now, back to the story. Okay, would you rather have thousand rupees today or double it and get it a year from now? When asked this question, people would generally give varied answers. They would consider factors like their intermediate need for cash, their confidence in being disciplined enough to wait, how much they trust the promise of receiving the doubled amount and even the impact of inflation or potential investment returns during that year. Look, buybacks are the stock market's version of that question. A company announces that it will repurchase its own shares, usually at a premium. If you, as the shareholder, tender, you get cash now. If you don't, your slice of the pie usually gets bigger.
It feels need and painless, a financial sleight of hand that pleases everyone in the short run. That's why buybacks are so loved and companies normally do them for two reasons. They think the market undervalues their stock or they don't see enough attractive projects to invest in. Either way, there will be fewer shares floating, higher earnings per share and a firmer floor under the price. This neatness is exactly why buybacks can be seductive. Because when a business stands at a strategic crossroads, the easiest thing to do with cash is, well, to hand it back, which brings us to Enforces. The company board just rolled out a eighteen thousand rupee crore buyback. Investors cheered and the stock price ticked up last week.
On paper, well, that's a win, but how does this actually hold up in the long run? To answer this question, let's go back to why companies announce buybacks. Undervaluation or future investments? Now, if this were about undervaluation, the numbers don't scream emergency. Enforces has a price to earnings or P ratio of around twenty-three X earnings, while the Nifty IT Index sits near twenty-six X, and this difference is not that bad. This leaves the other textbook explanation, not enough investment opportunities. But that's the part that doesn't add up either. Indian IT isn't starved of places to deploy capital.
It's staring at two looming battles where having cash in hand is vital, AI and tariffs. Spending thousands of crores to keep the stock from sliding may be comforting, but it's not what will win those battles. Now, first, let's start with AI. Generative AI is already showing into the bottom half of the services pyramid. Ticket resolution, regression testing, documentation, boilerplate code and L one L two support. Even the high-end architecture, domain consulting and product design are being reshaped by co-pilots and domain tune models. The companies that will defend pricing power are in the ones distributing cash. They're the ones turning services into software, packaging know-how into tools,
building reusable IP and fusing data, modal ops and change management into something clients can't easily shop around. Then there's the R and D. Indian IT has historically under-indexed the genuine research and development compared to our global peers. And that under-investment was manageable when the moat was labor arbitrage and process discipline. However, it gets fragile when the moat is algorithms and proprietary platforms. Even a fraction of this buyback, if invested into product development, vertical L L Ms and automation suits, and AI research could compound into defensible margins. The alternative is to become the implementation layer for someone else's IP, busy, billable and permanently replaceable.
Added that, the tariff time bomb. The US remains the primary profit pool for Indian IT and it's also the most politically volatile market for trade. What insulates a service company here is liquidity. A fat balance sheet that can absorb a few soft quarters without cutting muscle. When you spend eighteen thousand crore rupees on buybacks, you lower the shock absorbers. It's as if the weather forecast says stormy and you splurge on sunglasses. Now, you might say, hey, fin shots, but buybacks are not evil. After all, they give an exit to the retail investors at a premium. And you'd be right. They're flexible, unlike dividends, they don't lock you into recurring obligations.
They boost per share earnings and they also signal confidence that the business will grow. But the problem isn't that buybacks exist, it's that their timing, size and context matter more now than they did, well, ten years ago. Now, look at the context here. Enforces stock has lagged for three years. A buyback can help put a floor under that trend, but price flaws don't repair business models. The two threats, AI and tariffs, well, they don't yield to earnings per share optics. They yield to invention and insurance. Invention is R and D, the patience to build IP that's harder to dislodge, even if it depresses margins for a couple of years. Insurance is like a rainy day fund.
It reflects the understanding that unexpected global events can disrupt even the best laid plans. And having extra cash in reserve helps ensure stability without forcing difficult trade-offs in such moments. Now, mind you, we're not just talking about enforces here. The firms that treat today's surplus as venture capital rather than distributed for today's applause will own tomorrow's industry. However, for investors, buybacks can feel reassuring in the short run. They lift EPS, cushion stock declines and sometimes even act as a backstop in rough markets. But for a company, that comfort lasts only a short time. Because while buybacks stabilize the stock, they don't strengthen it. And that's where the real choice lies.
One path is instant gratification and the other is compounded resilience. In a year when algorithms are learning to write the code people pay you for and politicians are reshaping the stable environment. It should be obvious which path is more valuable. So, here's a different formulation of the opening question. Would you rather have a few extra rupees per share today? Or a business that can still defend its price per share 10 years from now? Buybacks will always have their place, but for enforcers and much of the Indian IT industry, the smarter money is invention and insurance.
Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to [email protected]. Until next time.
Page updated November 11, 2026 · transcript and summary are machine-generated
