The board of Tata Consultancy Services (TCS) will consider a share buyback proposal on Wednesday.

The announcement led to its shares rallying by more than 7 per cent with its market cap breaching the Rs 10-lakh- crore mark.

TCS, the largest IT services firm in the country, has been in focus particularly after Shapoorji Pallonji (SP Group) announced its plans to exit Tata Sons. While the Mistry camp has been eyeing a valuation of Rs 1.78 lakh crore for its 18.37 per cent stake in Tata Sons, there has been speculation on how the Tatas would fund such a purchase.

Proxy advisory firm IiAs had earlier said in a report that Tata Sons will need to sell about 16 per cent of TCS at the current market valuations to raise around $20 billion. The Tatas currently hold a little over 72 per cent in TCS.

However, while the possibility of a stake sale remained an overhang for the TCS counter, the buyback announcement removes that possibility for now. According to the current rules, a company buying back its shares from the market is barred from issuing more shares for a period of six months.

Despite this condition, Tata Sons can be a beneficiary of the buyback if it decides to participate in the proposed programme. The IT services giant had come up with such a share purchase plan last in 2018 when it announced a plan to purchase 7,61,90,476 shares under a tender offer at a price of Rs 2,100 per share.

The promoters had then participated in the programme and 4.97 crore shares (65 per cent of the total shares that were bought back) were accepted from Tata Sons. In 2017, too, TCS had undertaken a similar share purchase programme and these are part of its long-term capital allocation policy. TCS has cash reserves of Rs 73,993 crore.

In a buyback, a company buys its shares from the market, which are subsequently extinguished. Share buybacks generally improve earnings per share and help return surplus cash to shareholders.

On the bourses, TCS became the second Indian firm after RIL to attain a market valuation of more than Rs 10 lakh crore. The stock rose 7.30 per cent to close at Rs 2,706.85 on the BSE. During the day, it rose 8 per cent to a record high of Rs 2,727. Similarly, on the NSE it rallied 7.55 per cent to end at Rs 2,713.95.