Speaking to CNBC-TV18, Pai said the return of the mechanism restores an important tool for boards to manage capital and improve returns for investors. “A battered market gives you greater opportunities to reduce your floating stock, increase your EPS, and thereby give higher returns to shareholders,” he said, adding that “a battered stock market is a very good example, and I think the timing is working out very well.”
India’s capital markets regulator SEBI on Friday approved the reintroduction of open-market share buybacks through stock exchanges, reversing its earlier decision to phase out the route. The revised framework will come into effect from August 1, 2026, with buyback programmes required to be completed within 60 days.
Pai said the move was not aimed at supporting weak markets but at giving companies greater flexibility to manage capital. According to him, many listed firms are sitting on large cash reserves even as profitability remains strong.
“Why should cash be kept on the balance sheet earning 6-7% interest when it can be released to shareholders, and they can use it as risk capital to get higher returns? It creates more capital efficiency,” he said.
He pointed to estimates showing that companies in the Nifty 100 and Nifty 500 collectively hold nearly ₹13 lakh crore in surplus cash. With pre-tax profits of listed and unlisted companies at a record 16% of GDP, Pai said Indian companies should be allowed to follow global practices and return excess capital to shareholders.
Calling buybacks a legitimate use of surplus cash, Pai said the mechanism helps improve earnings per share and boosts overall shareholder returns. “Buying back stock is much more favourable because the floating stock comes down and EPS goes up, which means shareholders get a better return overall,” he said.
Bhavesh Shah, Managing Director and Head of Investment Banking at Equirus Capital, also backed the regulator’s decision, describing it as a positive step that restores a globally accepted practice.
“This is superb flexibility given to companies, especially where stocks have not been reflecting their true value. Why not use excess cash to buy undervalued stock?” Shah said.
He noted that several companies had already been undertaking buybacks through the tender offer route, but the exchange-based mechanism offers greater operational flexibility. “There’s a lot more flexibility, so we will definitely see more and more companies opting for this route and going ahead with buybacks,” Shah said.
The open-market route allows companies to repurchase shares in tranches through stock exchanges over a specified period, unlike tender offers where shareholders are invited to tender shares at a fixed price. SEBI had earlier moved to discontinue the mechanism due to concerns over price discovery and equitable participation among shareholders.
Pai, however, argued that the earlier concerns were overstated and noted that the regulator has now put in safeguards, including restrictions on promoters and founders participating in such buybacks.
He also called for reducing the mandatory gap between two buyback programmes from one year to six months to provide companies with even greater flexibility.
“The most important thing to me is that capital should be deployed efficiently. Capital will be recycled and go back to investors, and investors will decide where they want to deploy it. That’s very, very good for the economy,” Pai said.
