Construction scrips tumble

A sell-off gripped construction shares after the budget for 2007/08 proposed withdrawing tax breaks on construction contracts.

Nagarjuna Construction plunged 20.8% to Rs 153.10, Gammon India plunged 20% to Rs 317.45, IVRCL Infrastructures dropped 15.8% to Rs 289.90 and Hindustan Construction dropped 15.8% to Rs 102.70.

The budget has proposed withdrawing the ten-year income tax breaks on infrastructure construction contracts available under section 80 IA, with retrospective effect from April 2000.

The withdrawal of the benefit will raise the tax liability of construction firms which in turn will impact their profit margins, analysts say. Further, their short-term cash-flow may also be affected due to tax payment for previous years as the tax benefit has been withdrawn from April 2000.

Among key positives for the infrastructure sector, the finance minister committed higher allocations to power generation capacity, rural electrification, irrigation projects and also to the National Highways Development Programme. He also allowed mutual funds to set up dedicated infrastructure funds.