Whalesbook
Past Buybacks Prove Costly for Indian IT
Past share buybacks by India's largest IT services firms, once praised as good for shareholders, now look like a costly mistake. These programs, done when stock prices were high, have led to big investor losses. More critically, this spending may have diverted attention and money from crucial Artificial Intelligence (AI) investments, creating a strategic gap compared to global rivals and future industry needs.
Buyback Prices Far Above Current Shares
Companies like Tata Consultancy Services (TCS), Infosys, and Wipro bought back shares at prices much higher than they trade today. TCS repurchased shares at ₹3,000, ₹4,500, and ₹4,150, but its stock now hovers around ₹2,400. Infosys bought shares at ₹1,750, ₹1,850, and ₹1,800, with its stock now near ₹1,155. Wipro's recent buyback price of ₹250 is also well above its current trading price of about ₹204. These actions mean investors have lost between 8% and 47% from the buyback prices. This contrasts sharply with the Nifty 50's performance. The Nifty IT index has seen a sharp correction, down about 25% year-to-date in 2026, closing at 28,530.60 on April 24, 2026, showing the sector's current struggles.
Billions Spent on Buybacks Could Fund AI Growth
The ₹1.24 lakh crore spent on buybacks by these three IT giants represents a massive missed opportunity. This substantial sum could have funded critical investments in Artificial Intelligence (AI) infrastructure, platforms, and acquisitions – areas where the sector is now racing to catch up. India aims for over $200 billion in AI investment within two years, and Gartner forecasts India's IT spending to surpass $176 billion in 2026. However, past capital spending habits may have slowed companies' ability to lead in this crucial AI shift. While TCS has a strong market capitalization of about ₹11.40 lakh crore (P/E 17.54), Infosys stands at ₹4.68 lakh crore (P/E 15.89), and Wipro at ₹2.09 lakh crore (P/E 15.80). This valuation profile differs from peers like Tech Mahindra (P/E 27.72) and HCLTech (P/E 19.61). The Nifty IT index's year-to-date drop of roughly 19.19% highlights its underperformance compared to the Nifty 50's slight decrease of about 1.44%. Foreign institutional investors have also cut their stakes in Indian IT, signaling reduced confidence.
Timing and Valuations: A Historical Mistake
Buybacks were often announced when trailing P/E multiples were high, digital demand was at its peak, and growth forecasts were ambitious. This suggests valuations were based on optimism rather than solid value. For example, TCS conducted buybacks at P/E multiples of 34x, 39x, and 30x, significantly higher than its current P/E of around 17.54. Infosys's buybacks historically came at premiums over 24.5%, and Wipro's at 16-19% premiums. These decisions now seem driven by peak-cycle sentiment, not by buying back shares below their true worth, unlike the principle followed by investors like Warren Buffett. While regulators permit buybacks, the timing and pricing reflect strategic choices that have devalued shareholder capital.
Future Focus: AI and Analyst Views
The sector's future success now depends on its ability to shift towards AI-driven services. Analyst sentiment for TCS remains mostly positive, with 'Buy' ratings and price targets indicating moderate gains. Infosys, however, has a more mixed outlook, with many analysts holding 'Hold' ratings due to cautious revenue growth forecasts for FY27 between 1.5% and 3.5%. There's a concern that generative AI could cause annual revenue declines of 2% to 3% in traditional IT services over the next few years. On the other hand, AI is projected to create an additional market worth $300-400 billion by 2030. The key challenge for these companies is to effectively use the AI opportunity, evolving from traditional service providers to leaders in AI-led innovation. This is vital to overcome past capital allocation errors and ensure future relevance.