Shares of construction firms rallied on Wednesday as the Cabinet Committee on Economic Affairs approved various measures to revive the construction sector which has been undergoing stress.
The stock of Hindustan Construction (HCC) was up almost 20% to close at `27.50, followed by Gammon India whose stock was up around 17%. Shares of ARSS Infrastructure Projects were up around 13% and shares of Simplex Projects, IVRCL and Shelter Infra Projects rose around 10%.
The Sensex closed at 28,452.17, up 0.39% or 109.16 points, the BSE India Infrastructure Index closed at 185.41, up 0.70%. According to the Cabinet proposal, government agencies would pay 75% of the arbitral award amount to an escrow account against margin free bank guarantee, in those cases where the award is challenged.
The escrow account can be used to repay bank loans or to meet commitments in ongoing projects. This will allow construction companies to speed up execution of ongoing projects and increase the ability to bid for new contracts.
Other construction firms like PBA Infrastructure, Gammon India Infrastructure, Simplex Infrastructure, Jaihind Projects, Atlanta and Consolidated Construction Consortium and Mega Nirman were up between 4% and 7%. The move comes in the backdrop of the need to have a slew of short-term and long-term initiatives to address the issues ailing the construction sector.
In recent years, the construction sector has been affected by the large number of projects which got stalled during the period of stagnation between 2011 and 2014. The banking sector also has a large exposure to construction, estimated at over `3 lakh crore. 45% of the bank loans in the sector are under stress.
Cement firms like ACC, Ambuja Cement, Orient Cement and Andhra Cement were up between 1% and 4%. Shares of Ultratech Cement rallied to a 52-week high of `4,029, up 3.61%.