SEBI Seeks to Revive Open Market Buybacks
The Securities and Exchange Board of India (SEBI) is consulting on reintroducing open market share buybacks, a method that was paused on April 1, 2025. This change would give listed companies another way to return capital to shareholders, alongside existing methods like tender offers and book building. Open market transactions are known globally for helping to discover stock prices more accurately, increasing trading activity, and improving how companies use their capital. SEBI's proposal suggests it wants to match global standards and fix issues that led to the original pause.
Tax Reforms Drive the Change
A key reason for considering the return of open market buybacks is a change in tax laws from the Finance Act, 2026. Previously, companies paid a tax on buybacks, which meant shareholders who sold their shares back to the company had a tax advantage over those who didn't. The new tax rules, effective April 1, 2026, now treat money received from buybacks as capital gains for shareholders. SEBI believes this change makes open market buybacks and other buyback programs similar from a tax standpoint. The goal is to ensure all shareholders are treated fairly, regardless of whether they can participate in a specific buyback offer, and to resolve the issue of unequal outcomes seen before.
Potential Concerns Remain
However, potential issues could still arise even with the new tax structure. Bringing back open market buybacks might create chances for market manipulation or lead to unexpected problems for less experienced investors. In the past, critics pointed out that the old method of matching buybacks by price and time sometimes let certain shareholders gain unfairly while excluding others. While the new tax rules aim to fix this, ensuring fair price discovery through open market buybacks will need close monitoring. There's also a risk that companies might feel more pressure to conduct buybacks, potentially taking money away from other growth plans. Even though the tax is now on the shareholder instead of the company, it might not benefit everyone, especially higher-tax-bracket investors who previously found the corporate tax structure advantageous. SEBI's role includes ensuring market fairness, so successful implementation will depend on strong oversight to prevent preferential treatment or unfair information advantages.
Industry Support and Next Steps
Industry groups like the Federation of Indian Chambers of Commerce & Industry (FICCI) and the Association of Investment Bankers of India (AIBI) support the proposal. They believe bringing back this buyback method will help companies manage selling pressure, reduce panic selling, and boost investor confidence. The plan specifies that buybacks on stock exchanges will use a dedicated trading window. SEBI is now asking for public comments on the proposal, with feedback due by April 23. This action shows SEBI's ongoing work to update market rules to fit current economic conditions and international standards.