It’s a disguise game being played where despite of weak financials and company, economy the stock markets grows. We all know that if the stock markets grow despite of weak economic growth the world will accept the growth at any cost. If you don’t believe the strength of impact of buy back then please note that stock repurchases worth almost $2 trillion have helped buoy the bull market since March 2009. Fund managers are clever too; they came up with Buyback based funds where inflows and returns were beyond phenomenal. European companies also followed the same path. Hence a question which comes in mind when the bubble will go for burst. It will never and even if it goes it will impact the common investors and not the cash rich fellows of the society. These practices have created income inequality and created long problems for the social life of the society as behavioral culture changes. Income inequality is going to rise in the long term as more complicated the financial products and its investments are going to grow.. An argument might come that buyback helps to rewards shareholders but that’s story in the short term. Common investors goes by growth and returns and hence when growth is achieved by Buy back its often ignores the real story of the company. This is the place of birth of income inequality.
Paying divined to the investors are better since these companies and practices don’t hide any de-growth stories and are very clear in their operation. They don’t play with common investors and one can read very clearly the growth stories of the company. Buy back on the other hand is way to hide poor growth numbers and outlook of a company. When the next recession will hit its quite hard to find any new theory of crisis management at today’s time.
Now getting into the shoes Indian corporate have also started rolling out of Buy Back of shares. Well the logic behind such buy back is that share holders are being taxed in case of hefty dividend payouts as dividend payout is very much under taxation slab. Well a good path to reward shareholders and also fool the government.