Mumbai: The Sensitive Index rose, reversing a two-day slide. Infosys Technologies Ltd led software developers higher after analysts judged new taxes would not impact earnings.
The government yesterday said it will expand taxation to software companies that currently have exemptions.
“The move to tax them will not impact earnings,” said Prateek Agrawal, head of equities at ABN Amro Asset Management India Ltd in Mumbai. “The tax can be offset against future profits.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 221.46, or 1.7%, to 13,159.55. The index had a two- day 5.2% drop. The measure dropped yesterday after the government proposed a tax increase on dividends.
The S&P/CNX Nifty Index on the National Stock Exchange rose 65.90, or 1.8%, to 3811.20.
Infosys, the nation’s second-biggest software exporter, gained Rs75.1, or 3.6 %, to Rs2,153.45. Satyam Computer Services Ltd, the country’s fourth-biggest software company, added Rs22.55, or 5.5%, to Rs435.05. Tata Consultancy Services Ltd, India’s largest computer-services provider, rose Rs67.15, or 5.7%, to Rs1,255.6.
Software companies account for about a fifth of the Sensex’s weight.
Deferred Tax Credit
Companies claiming tax exemption under some provisions of the Income Tax Act will have to pay an effective minimum alternate tax of 11.22%, Finance Minister Palaniappan Chidambaram said in his budget for the year starting April 1. Employee stock options will be included while computing fringe- benefit tax, he said.
Indian software exporters were exempt from paying income tax for 10 years from the time they received their license, or until 2009, whichever came first.
“The proposal to levy the tax will not impact earnings,” analyst Mitali Ghosh at Merrill Lynch said in a note to clients today. “Companies can take a deferred tax credit.” Ghosh said the move is neutral, rather than negative.
The minimum alternate tax can be carried forward and offset against future profits when companies will have to start paying the tax in the fiscal year starting 1 April 2009, Merrill’s Ghosh said.
Tata Consultancy is a good play as it does not have an employee stock option plan, according to the note.
Overseas investors sold a net Rs4.16 billion worth of stocks on 27 February, according to the latest information on the Securities & Exchange Board of India’s Web site.
The following shares rose or fell. Stock symbols are in brackets after company names.
Cement companies: ACC Ltd led cement producers lower after Merrill Lynch & Co. cut its rating on the stock citing the government’s proposal to raise taxes on the building material.
The government raised the excise tax by 50% to Rs600 a ton on cement sold at more than Rs190 a 50- kilogram bag, Chidambaram said in his budget speech yesterday.
The “worst government intervention” in the sector is the increase in excise duty, Merrill Lynch said in a note to clients today. The prospect of positive profit surprises is low and the long-term outlook on the industry is weak, the report said.
ACC, the country’s largest cement maker, fell Rs23.5, or 2.6%, to Rs876.55, after its stock rating was cut to “sell” from “buy” by Merrill Lynch. Grasim, India’s third- largest cement maker, dropped Rs57.15, or 2.6%, to Rs2,155.45. Gujarat Ambuja Cements Ltd, India’s fourth-biggest, slid Rs4.2, or 3.6%, to Rs111.75.
Stock upgrades: HDFC Bank Ltd, Satyam Computer Service Ltd, Larsen & Toubro Ltd and HCL Technologies Ltd had their ratings raised to “buy” at Motilal Oswal Securities Ltd, which said the recent decline in their share prices had made the stocks attractive.
The ratings were raised from “neutral” by Motilal, which was ranked the No. 2 Indian brokerage in a 2006 Asiamoney poll.
The benchmark Sensitive Index dropped 10% from its record on 8 February.
HDFC Bank gained Rs48.5, or 5.2%, to Rs981.1. Its shares slid 11% since 8 February. Larsen added Rs53.05, or 3.6%, to Rs1,540.55 after sliding 12% since 8 February. HCL Technologies climbed Rs35.5, or 6%, to Rs631.6. The shares dropped 4.3% since 8 February.
Bajaj Auto Ltd fell Rs102.85, or 3.9%, to Rs2,514.1. India’s second-biggest motorcycle maker reported a 1.7% drop in sales of two- and three- wheeled vehicles in February, saying “production constraints” curbed supply. Bajaj sold 202,212 motorcycles, scooters and three-wheeled auto rickshaws last month, compared with 205,776 a year earlier, the company said in an e-mailed statement.
Hindalco Industries Ltd slid Rs2.45, or 1.8%, to Rs137.2. India’s biggest aluminum producer said its board will meet 2 March to consider selling shares to select investors.
Indian Bank gained Rs7.3, or 8%, to Rs98.3. The 100-year-old lender, which is controlled by the government, began trading today. The lender sold shares at Rs91 apiece, raising Rs7.82 billion.
Sesa Goa Ltd plunged Rs133.6, or 7.5%, to Rs1,649.75, extending yesterday’s 8.5% drop. India’s biggest non- state-run iron ore exporter said the government’s plan to levy a tax on overseas sales of the steelmaking ingredient will lower profit. Net income in the year to 31 March 2008, will be reduced by Rs1.8 billion, said Managing Director P.K. Mukherjee in a phone interview. The company may report a Rs6.98-billion profit this year, according to a median estimate of 7 analysts surveyed by Thomson Financial.
Tata Steel Ltd added Rs9.4, or 2.1%, to Rs451.9. The company, set to become the world’s fifth-biggest steelmaker after agreeing to buy UK’s Corus Group Plc, gained after it increased prices for the first time this year to match global rates. The price of hot-rolled steel, an industry benchmark, was raised today by Rs1,000 a metric ton, or 4%, to Rs27,000.
“Global demand has pushed prices higher,” Deputy Managing Director T.K. Mukherjee said by telephone from Mumbai.