BackInvestment allowance may provide metals companies some shine
The move will hopefully set the investment cycle going again
Premium(Mint)
The reintroduction of investment allowance is a key positive for the industry. The government has said investments by manufacturing companies in plant and machinery exceeding ₹ 100 crore will qualify for a 15% investment allowance. That means, an ₹ 100 crore investment will qualify for a ₹ 15 crore deduction from income tax of that year. This means a saving of around ₹ 5 crore on an investment of ₹ 100 crore.
Most companies in ferrous and non-ferrous sectors have capital projects that are in various stages of implementation. The budget proposal will mean that investments made between 1 April, 2013, and 31 March, 2015, will qualify for the sop.
The government’s intention is two-fold: one, encourage capital spending which has slowed down, and more importantly, accelerate the process by giving only a two-year window in which to do it. The hope is that this will set the investment cycle going again.
Finally, companies will still have to pay minimum alternate tax. Still, this is a key measure that could provide some relief to companies in the metals sector. One change that will benefit steel companies is a removal of export duty on galvanized flat steel products, with retrospective effect from March 2011.
The government has reiterated its intention to spark an increase in infrastructure investment and has also announced sops for housing. If its measures have the intended impact, it should result in higher demand for metals. In 2013-14, the increase in surcharge on income tax is a negative for these companies, as it is for other sectors.
The metals index on BSE was down by 2.95% on Thursday, falling more than the broader market.
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