Bajaj Auto gains 2% in a weak market as the board to mull buyback on June 14

Shares of Bajaj Auto advanced 2 percent to Rs 3,965 on the BSE in Friday’s trade, in an otherwise weak market, after the company said its board will consider a buyback proposal on June 14, 2022. With this, the stock has rallied 5 percent in two trading days. At 09:18 AM, Bajaj Auto was up 1.7 percent as compared to a 1 percent decline in the S&P BSE Sensex.

“The meeting of the board of directors of the company is scheduled to be held on Tuesday, 14 June 2022, inter-alia to consider a proposal for buyback of fully paid-up equity shares of the company,” Bajaj Auto said after market hours on Thursday.

The primary objective of a share buyback program is to arrest the fall in the value of a stock by reducing the supply of the stock, which essentially pushes up the share price through a better price to earnings (P/E) multiple.

The reasons for buyback are to improve earnings per share; to improve return on capital, return on net worth and enhance the long-term shareholder value; to provide an additional exit route to shareholders when shares are undervalued or are thinly traded; to enhance consolidation of stake in the company; to prevent unwelcome takeover bids; to return surplus cash to shareholders; to achieve optimum capital structure; to support share price during periods of sluggish market conditions and to service the equity more efficiently.

Earlier, on September 1, 2000, the company had made an offer to buyback about 18 million shares at a price of Rs 400 per share.

Bajaj Auto has outperformed the market in recent past with the stock ralling 11 per cent in the past one month, as against 0.53 per cent rise in the S&P BSE Sensex. Moreover, in past three and six months, Bajaj Auto gained 19 per cent each, as compared to a marginal 0.21 per cent gain and 7 per cent decline in the benchmark index, respectively, during the same period. However, in the past one year, the stock has underperformed the market by falling 6 per cent, as against 5 per cent rise in the Sensex.

Tech view
Target: Rs 4,052
Support: Rs 3,791
The stock of Bajaj Auto is hovering around its immediate resistance level of Rs 3,921. A decisive close above this level can propel the stock towards Rs 4,052, followed by Rs 4,111, as per monthly Fibonnaci charts.
Meanwhile, its near-term support is at Rs 3,791 per share, its 20-day moving average (20-DMA). All the moving averages have favourable crossovers on the daily charts, while momentum oscillators, too, reflect bullish sentiment.