The shares of mid-cap construction companies were battered following the government’s recent clarification in Budget 2007-08 that contractors for infrastructure projects would not receive tax exemptions under Section 80 IA of the I-T Act. This unpleasant surprise resulted in the stocks of mid-cap construction companies plunging in the market by around 20 per cent. But analyst reckons that the worst has been over for this sector as higher perceived risks is reflected in the nearly 15-25 per cent fall in stock prices and the stronger growth prospects would ultimately offset higher risks. The share price of Nagarjuna Constructions fell by 17 per cent , or Rs 32.90, from Rs 193.45 registered on February 27, 2007, to close at Rs 160.55. Similarly, the share price of Hindustan Construction witnessed a steep fall from Rs 122 to Rs 89.45, a loss of Rs 32.55, or 26.68 per cent, while IVRCL dipped by Rs 52.35, or 15.19 per cent, from Rs 344.45 to Rs 292.10 during the same period.One of the major positive factors for these mid-cap construction companies is the government’s strong commitment to the infrastructure development. Major thrust has been given in the areas of rural infrastructure, irrigation programmes, ultra-mega power projects, rural infrastructure etc, which will benefit these companies. “The shares of these mid-cap construction companies were highly overpriced and the recent budgetary proposals had resulted in a fall of 20-30%. Another 10% correction cannot be ruled out. Also strong order books and continued order inflow from this sector will sustain the growth momentum of mid-cap construction firms,” Rajen Shah, CIO, Angel Broking, said. In the next three years, it is expected that the order in flow of more than 3 lakh crores will come from the infrastructure sector.
