Infrastructure stocks rally as FM cuts withholding tax to 5%

MUMBAI: Shares of infrastructure companies gained momentum Friday as sentiment turned positive on hopes that infrastructure and construction companies burdened with huge debt will benefit after the government cut withholding taxes to 5 per cent from 20 per cent.

The tax cut is for Indian companies borrowing loans from July 2012 to June 2015. The move is likely to encourage debt refinancing via ECB and is aimed at increasing foreign inflows.

This move was already announced in the budget but got formal approval by Finance Minister P Chidambaram today.

The move is likely to benefit companies like L&T, Gammon Infra, Gammon India, Lanco Infratech, GMR Infrastructure, GVK Infrastructure, IVRCL, Jaiprakash Asscociates etc.

Yatin Mota, research analyst, ET Now citing sectoral analysts said that the move won’t have a major impact on infrastructure companies since it is prospective. It will aid those companies which take on foreign funds from now onwards.

However, cash flows may marginally improve due to this. Companies may not go for refinancing to avail of this benefit as this may prove costlier.

At 02:15 p.m.; GVK Power & Infrastructure was up 6.74 per cent, GMR Infrastructure rallied 9.53 per cent, Lanco Infratech surged 13.81 per cent, Jaiprakash Associates moved 6.81 per cent higher, IRB Infrastructure was 8.54 per cent higher and Gammon India advanced 5.38 per cent.