The Hindu Business Line : IT stocks recover on hopes of lower MAT impact

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Mumbai March 1 Information Technology shares recovered on Thursday after falling sharply on Budget Day after being slapped with levies.

IT stocks were among the worst hit on Wednesday after the proposal to bring ESOPS under the Fringe Benefit Tax (FBT) regime, imposition of Minimum Alternate Tax (MAT) on companies and a rise in dividend distribution tax were announced.

The BSE IT index on Thursday rose 4.13 per cent to close at 5,071.35 points.

``IT counters were over-beaten on Budget Day as market players' initial reaction to MAT was it would affect the FY-09 earnings per share (EPS) of IT companies by over 5 per cent. The day after, it was realised that EPS of companies will be hit around 1.5-2 per cent. So, stocks of IT companies recovered on Thursday on short covering," said Mr Rajiv Mehta, IT analyst, India Infoline.

A report by Emkay Research stated imposition of MAT on IT companies would have a negative impact of around 150-200 basis points on net margins, depending on the company's exposure to tax shelter units.

However, those companies which are paying tax outside India will get some respite, on account of the double taxation avoidance treaty, as they can set-off the tax paid outside India against MAT.

"According to the double tax treaty, tax paid abroad is available as credit to the company. Because of this, larger players will not be affected," said Mr Atul Nishar, Chairman, Hexaware Technologies.

``Though there is an increase in coverage of MAT, there is the facility of carry forward of MAT available to all companies. So in effect it will not have much impact on profits,'' said Mr Amar Chintopanth, CFO, 3i Infotech.

Analysts agree the imposition of FBT on ESOPS is a negative, however, and there is no clarification on how it will be calculated. "Yesterday, concern was over additional taxes. No one was really sure how the taxes would impact the companies. There is also a question mark on the FBT issue. We are awaiting clarifications on how it will be calculated," said an IT analyst.

"The FBT on ESOP is negative but the details like the rate and basis are not yet known. So markets have discounted the FBT impact from the available information," said Mr Rajiv Mehta.

Of the 10 stocks present in the IT index, eight closed in the green with MphasiS Ltd and HCL Technologies gaining the most by 7.79 per cent and 5.96 per cent respectively.

Wipro Ltd closed at Rs 589.40, up 5.09 per cent, Infosys Technologies Ltd closed at Rs 2153.45, up 3.61 per cent while the stock of Tata Consultancy Services closed at Rs 5,071.35, up 4.13 per cent on the BSE.

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