₹18000 Cr For Buybacks Vs ₹3600 Cr For AI R&D – Which Pays Off? 10 Points

Bengaluru

🚨 Infosys’ ₹18000 Cr Buyback: Short-Term Gain or Long-Term Pain?

1. The Big Question

• Buybacks are like choosing between:

  • ₹1,000 today (instant cash).

  • ₹2,000 next year (long-term growth).

• Infosys just picked the first option: a ₹18,000 crore share buyback.

2. Why Do Companies Buy Back Shares?

1. Undervaluation

   • Stock trades lower than fair value.

   • Repurchasing boosts Earnings Per Share (EPS).

2. Lack of Investment Opportunities

   • No better projects to deploy cash.

   • Easier to hand money back to shareholders.

3. Infosys’ Current Position

• P/E ratio: ~23x vs Nifty IT: ~26x → not deeply undervalued.

• So, the buyback likely signals fewer attractive investment opportunities.

4. Financial Risks of the Buyback

1. Capital Drain

   • ₹18,000 crore spent on buybacks reduces reserves for R&D or crisis management.

   • Lowers ability to withstand US tariff shocks or political volatility.

2. Missed Growth Investment

   • AI disruption is reshaping IT services.

   • Even 10–20% of buyback funds (~₹1,800–₹3,600 crore) into R&D could fuel:

     • Proprietary platforms.

     • Domain-specific AI tools.

     • Automation products with long-term pricing power.

3. Reduced Shock Absorbers

   • Without strong liquidity, Infosys risks being vulnerable in downturns.

5. AI Threats to Indian IT

• Generative AI already automating:

  • Ticket resolution, testing, boilerplate coding.

• Even premium services (architecture, consulting) are under pressure.

• Competitors investing in software, IP, and AI-driven platforms will gain pricing power.

6. Tariff & Trade Risks

• US = largest profit pool for Indian IT.

• Political risks → higher tariffs, tougher regulations.

• Without strong reserves, IT firms risk margin cuts in weak quarters.

7. Pros of Buybacks (Short Term)

• Exit at a premium price for retail investors.

• Boosts EPS & stock price floor.

• More flexible than dividends (no recurring payout obligation).

8. Cons of Buybacks (Long Term)

• Don’t fix business model weaknesses.

• Short-term applause vs. long-term resilience.

• Diverts cash away from:

  • Invention (R&D, AI, IP).

  • Insurance (liquidity buffer against crises).

9. The Investor Dilemma

• Buyback = instant gratification (EPS, stock boost).

• R&D + reserves = compounded resilience (10-year competitiveness).

10. The Bottom Line

• Infosys’ ₹18,000 crore buyback pleases markets today.

• But in a world of AI disruption and tariff uncertainty, the real winners will be IT firms investing in innovation + financial buffers.

• Investors should ask: Would you rather gain a few extra rupees per share today, or hold a stock that still defends its value 10 years from now?