Stock Market Updates: Navratna PSU received show cause notice after market closure, demand order given to construction company also

After the closure of the domestic stock market, two big companies belonging to the corporate world and public sector undertakings (PSUs) have submitted regulatory filings to the stock exchanges (BSE and NSE). one of the prestigious Navratna Public Sector Undertaking (Navratna PSU) ‘Show Cause Notice’ (SCN) has been issued by the statutory authority. On the other hand, a major listed Infrastructure and construction company has received a formal ‘demand notice’ regarding tax liability and penalty. The direct impact of these regulatory developments that came after the market closed can be seen on the movement of shares of both the companies and the sentiment of investors in the next trading session.

According to the official information given to the exchange, this notice has been sent to the Navratna company by the Indirect Tax (GST) authority or the Commercial Tax Department in connection with the mismatch of audit of financial years and Input Tax Credit (ITC).

• Main reason for notice: The department has sought clarification regarding discrepancies in input tax credit claims, adjustment of tax liability or inter-state transfers reflected in the company’s books.

• Deadlines and Answers: The notice directs the company to submit necessary documentary evidence and clarifications within the stipulated time-frame.

• Company’s official stance: The PSU management has clarified in the exchange filing that they will present their detailed and legal case before the statutory authority within the stipulated time period. The Company believes that it has complied with all tax regulations and this is not expected to have a material adverse impact on the Company’s day-to-day operations or financial stability.

On the other hand, a huge demand order has been issued by the tax assessment officer to the listed company working in the infrastructure and civil construction sector.

• Demand and penalty: This notice mainly pertains to tax assessment of previous financial years, disallowance of deductions and interest and penalty imposed thereon.

• Preparation of Appeal: The construction company has informed the stock exchange that it does not agree with this assessment order and is going to challenge it before the concerned Appellate Authority/Tribunal or the High Court within the prescribed legal time limit.

• Keep an eye on cash flow: If the company receives an order to deposit the partial amount immediately, minor pressure on the working capital of the company may be seen in the short term.

According to market analysts, whenever a show-cause or demand notice is issued to a PSU or infra company, investors initially exercise caution:

1. Opening reaction: There may be a possibility of slight profit-booking or gap-down opening in both these stocks in the early morning session of the next trading day.

2. Attitude of institutional investors: DIIs and FIIs take decisions based on the ratio of material financial impact mentioned in the notice. If the demand is very small relative to the company’s net worth or annual profits, the drawdown may be limited.

3. Keep an eye on the updates: The formal legal response from both the companies and the appellate process will determine the medium-term trends of the stock.

Market experts say that it is not an uncommon occurrence for infrastructure and PSU companies to receive tax notices and show-cause notices during routine assessments. In most of the cases, companies go to appellate forums and obtain stay or relief. Retail investors should avoid panic selling on any headline and wait for the upcoming clarifications and financial impact details to be provided by the companies on the exchanges.