In today’s Finshots, we ask: are stock buybacks really value creation or just short term applause?

The Story

Would you rather have ₹1,000 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 immediate 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.

Buybacks are the stock market’s version of that question. A company announces that it’ll 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 neat 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: 

1. They think the market undervalues their stock, or 
2. 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 to hand it back.

Which brings us to Infosys. The company board just rolled out a ₹18,000 crore buyback. Investors cheered, and the stock price ticked up last week. On paper, 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.

If this were about “undervaluation”, the numbers don’t scream emergency. Infosys has a price to earnings or P/E ratio of around 23x earnings, while the Nifty IT index sits near 26x. 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.

Let’s start with AI. Generative AI is already chewing into the bottom half of the services pyramid, ticket resolution, regression testing, documentation, boilerplate code, and L1/L2 support.

Even the high-end architecture, domain consulting, and product design are being reshaped by copilots and domain-tuned models. The companies that will defend pricing power aren’t the ones distributing cash; they’re the ones turning services into software, packaging know-how into tools, building reusable IP, and fusing data, model ops, and change management into something clients can’t easily shop around. 

Then, there’s the research & development (R&D). Indian IT has historically under-indexed on genuine R&D compared to our global peers. And that under-investment was manageable when the moat was labour 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 LLMs, automation suites, 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.

Add to this 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 services company here is liquidity. A fat balance sheet that can absorb a few soft quarters without cutting muscle.

When you spend ₹18,000 crore on buybacks, you lower the shock absorbers. It’s as if the weather forecast says “stormy” and you splurge on sunglasses. In fact, we wrote about this earlier here.

Now you might say, “Hey, Finshots. 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 a recurring obligation), 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 10 years ago.

Look at the context here. Infosys’ stock has lagged for three years. A buyback can help put a floor under that trend. But price floors don’t repair business models. The two threats, AI and tariffs, don’t yield to earnings per share (EPS) optics. They yield to invention and insurance.

Invention is R&D: the patience to build IP that’s hard 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 Infosys here. The firms that treat today’s surplus as venture capital, rather than distribute it 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; 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 ten years from now? 

Buybacks will always have their place. But for Infosys, and much of the Indian IT industry, the smarter money is invention and insurance.

Until then…

Don’t forget to share this story on WhatsApp, LinkedIn and X.

A message to all the breadwinners

You work hard; you provide and make sacrifices so your family can live comfortably. But imagine when you're not around. Would your family be okay financially? That’s the peace of mind term insurance brings. If you want to learn more, book a FREE consultation with a Ditto advisor today.