SEBI Brings Back Open Market Share Buybacks to Give Companies More Flexibility

India’s capital markets are entering a new phase after the Securities and Exchange Board of India (SEBI) officially brought back open market share buybacks from 1 August 2026. The move allows listed companies to repurchase their shares directly through stock exchanges, giving businesses another way to return surplus cash to shareholders while improving capital allocation.

Open market buybacks were gradually phased out in recent years due to concerns over transparency and equal participation among shareholders. Companies mainly relied on the tender offer route, where investors could offer shares back to the company at a fixed price. Under the revised framework, firms can once again purchase shares from the secondary market, although new safeguards have been introduced to strengthen investor protection.

According to SEBI, open market buybacks must now be completed within 66 working days, making the process faster and more predictable. Companies are also required to use at least 40 per cent of the approved buyback amount during the first half of the offer period. Promoter shareholdings will remain locked during the buyback, and companies cannot carry out transactions that would reduce public shareholding below the required minimum level.

Another important change is that appointing a merchant banker is now optional for many buybacks. Instead, several responsibilities will be shared between the company, auditors, compliance officers and stock exchanges. SEBI believes this will reduce compliance costs while maintaining accountability throughout the process.

For companies, the return of open market buybacks offers greater flexibility in managing excess cash. Rather than committing to a single fixed price through a tender offer, businesses can purchase shares gradually depending on market conditions. Analysts say this approach may become especially useful when management believes its shares are undervalued or when companies wish to improve earnings per share by reducing the number of shares in circulation.

Shareholders could also benefit, although participation is different from a tender offer. Investors who choose to sell during the buyback period may receive market driven prices instead of a guaranteed buyback price. Tax treatment will continue to depend on prevailing capital gains rules and individual investor circumstances. Financial advisers recommend that investors understand both pricing and taxation before deciding whether to participate in any buyback programme.

The decision reflects SEBI’s broader efforts to simplify regulations while making India’s capital markets more efficient. Alongside the revised buyback framework, the regulator has introduced measures to improve fundraising, strengthen municipal bond markets and deepen the country’s credit markets. These reforms aim to make Indian financial markets more attractive for both domestic and international investors.

Market experts believe companies with strong cash reserves may increasingly consider buybacks as an alternative to special dividends. Buybacks often signal management’s confidence in the company’s future and may improve shareholder value when carried out responsibly. However, analysts also caution that investors should evaluate a company’s long term business performance rather than viewing a buyback alone as a reason to invest.

As India’s equity markets continue to expand, SEBI’s latest reforms are expected to provide companies with more financial flexibility while strengthening confidence in the country’s regulatory framework.