Road construction cos gain on proposal to set up regulator

Road construction stocks like IRB Infra and Jaiprakash Associates witnessed good demand today after Finance Minister P Chidambaram proposed setting up of a regulatory authority for the road sector.

IRB Infra Developers surged 2.42% to Rs 120.70 while a leading road and bridges construction company Jaiprakash Associates gained 2.29% to Rs 73.85.

Shares of engineering giant Larsen and Toubro, which also has exposure to construction, rose 0.68% to Rs 1,420.10.

To address financial stress, construction risk and contract management in the road sector, the government today said it would set up a road regulatory authority in 2013-14.

"Challenges not envisaged earlier including financial stress, enhanced construction risk and contract management issues are best addressed by an independent authority...Hence the government has decided to constitute a regulatory authority for the road sector," Chidambaram said while announcing the Budget.

This move may also be linked to the recent trend of some private companies exiting projects on account of delay in various clearances. Presently, NHAI (National Highway Authority of India) along with the Road Ministry awards projects.

The key functions of the regulator are likely to include tariff setting, regulation of service quality, assessment of concessionaire claims, collection and dissemination of sector information, service-level benchmarks and monitoring compliance of concession agreements.