Federal budget and the Pakistan Stock Market

Muhammad Faisal Hafeez

The KSE-100 index closed at 42,015, with a gain of 700 points during the pre-budget week. This was in line with expected range of 41,264 – 42,302, at the beginning of last week.

Post budget week is usually more volatile while volumes improve, as compared with a low volume pre-budget week. During the last 13 years (2009 to 2021), the market has posted losses in 8 years vs gains in 5 years. The largest loss making post budget week was in 2017 (-7.8%), when the market fell from its historic high levels of over 52,000. Excluding 2017, the average loss is 0.3% in the week.

The volumes and volatility is usually a result of shifting by investors between sectors. Overall sentiment is expected to be weak due to a 2% poverty alleviation tax on companies. The index heavy weight, banking sector is expected to lead the decline due to increase in tax rate from 39% (35% corporate tax and 4% super tax) to 47% (45% corporate tax and 2% poverty alleviation tax).

On the positive note the government has once again projected high amount of dividends from government entities. (Per share: PSO Rs 23, OGDC Rs 11.32, SNGP Rs 9.95, PTC Rs 0.4, PPL Rs 4.36). Actual execution of these payouts, make these investments very attractive, especially SNGP with a yield of over 31%.

The increase in PSDP allocation is also positive, however it was already revealed before the budget, which supported the performance of cement sector in the last week.

The amendments in personal income tax regime, however moves Pakistan another step closer to the resumption of IMF program. Based on historic performance of the market, we expect the market to close the week in the range between negative 1.5% to positive 1%.

The writer is the CEO of Kifayah Investment Management Limited and can be reached at: [email protected]

DISCLAIMER: The views expressed in this opinion piece are the author’s own and do not necessarily reflect SAMAA’s editorial stance.