Pakistan Stock Exchange experiences lack luster week

Pakistan Stock Exchange experienced a subdued week, posted a nominal decline of 365 points (0.46%WoW), primarily due to weakness in the banking sector following news of the continuation of the ADR-based tax.

Average daily trading volume also declined to 356 million shares for the week, down 13%WoW.

The incidence of futures rollover, coupled with it being the last week of the fiscal year overall contributed to the lack luster performance.

Several important data points came in during the week, including a CAD of US$270 million, below expectations of a slight positive balance. This was due to the SBP acting swiftly to clear the backlog of overdue outward dividend repatriations, impacting the balance negatively.

Monthly FDI was reported at US$271 million, up 95%YoY, taking 11MFY24 FDI to US$1.73 billion, up 15%YoY.

Federal Budget for FY25 was approved by the National Assembly on Friday, with several amendments in previously presented finance bill.

These included introduction of a 15% FED on sales by builders/developers, continued concessions on HEV imports, and increased FED on cement, among other changes.

On the external front, foreign exchange reserves held by State Bank of Pakistan (SBP) declined by US$239 million to US$8.9 billion.

The domestic currency continued to strengthen against the greenback, ending the week at PkR278.34/US$ (up 0.06%WoW).                    

Other major news flows during the week included: 1) World Bank approved US$535 million for social protection, livestock development, 2) No cut in gas tariff, 3) Finance Minister issues warning to retailers, 4) the GoP raises PKR908 billion new debt via T-Bills, PIB, and 5) Foreign investors repatriate record US$918 million in May.

The best performing sectors included: Tobacco, Jute and Vanaspati & allied, while ETFs, Refinery and Property were amongst the worst performers.

 Major selling was recorded by mutual funds with net sell of US$5.8 million and other organizations with net sell of US$2.2 million. Brokers and companies absorbed most of the selling with a net buy of US$4.9 million and US$1.5 million, respectively.

Top performing scrips of the week were: MUREB, FABL, PAKT, UNITY and HGFA, while the laggards included: YOUW, MCB, EPCL, CNERGY and CEPB.

With the approval of the Federal budget, clarity on new budgetary measures has emerged, and the market is anticipated to sustain positive momentum as new fiscal year commences.

The focus will now shift to upcoming discussions with the IMF regarding the next EFF program, with a keen eye on their assessment of the approved budget.

The anticipated easing of inflation figures for May 2024 is expected to reinforce positive market sentiment further.

 

 

Pakistan Stock Exchange Records Highest Gain

During this past week the market lost ground in the first two days amidst rumors about potential increases in the Capital Gains Tax (CGT) due to which KSE100 index stayed bearish and the index hit 72,589 level before showing signs of recovery on Wednesday. Market recovered swiftly after the announcement of Federal Budget for FY25. The taxation measures introduced in the budget weren't as adverse as originally anticipated. On Thursday the index gained 3,410 points, most in a single day and closed at 76,706 level on Friday reaching the highest ever closing, with a gain of 2,952 points, up 4%WoW.

Despite initial jitters over proposed tax changes, the market recovered, reflecting investors’ confidence amidst pre-budget uncertainty. The week also saw the State Bank of Pakistan (SBP) announcing a first token rate-cut of 150 bps, adding further to the positivity.

As inflation outlook eases, the cut-off yields in the latest T-Bills auction dropped.

Overall, average trading volumes decreased by 3.8%WoW to 409.6 million shares as compared to 423.3 million shares a week ago.

On the currency front, PPR depreciated by 0.11%WoW to close at 278.51/US$.

Other major news of the week included: 1) RPK9 billion approved for clearing OMCs’ PDCs, 2) ECC allowed conditional export of 0.15 million tons sugar, 3) In FY25 Budget government announced to raise tax to GDP ratio to 13%, 3) government also announced to float US$1 billion bonds and obtain US$4 billion loans from the foreign banks, 4) FY25 Budget aimed raising PKR3.8 trillion new taxes and , 5) World Bank projected Pakistan’s GDP growth at 2.3%.

According to AKD Securities Commercial Banks, Pharmaceuticals, Oil & Gas Exploration Companies, Oil & Gas marketing companies and Paper & Board were amongst the top performing sectors, while laggards included Textile composite, Woollen, Leasing companies, Food & Personal Care Products and Textile Spinning.

Major net selling was recorded by Individuals with a net sell of US$8.9 million. Mutual funds absorbed most of the selling with a net buy of US$11.1 million.

Top performing scrips of the week were: BAFL, MCB, NCPL, UBL and KOHC, while laggards included: ILP, PTC, YOUW, COLG and 5) PGLC.

The post-budget market has attained some certainty, particularly in sectors that benefitted from budgetary measures. With the start of monetary easing, optimism is expected to rise, particularly in cyclical sectors.

Furthermore, the approval of the budget paves the way for the upcoming IMF program, which will likely become a significant market catalyst going forward.

 

Pakistan Budget disappoints public

I am placing some excerpts from the editorial published in Pakistan’s leading English daily newspaper dawn.com and also a commentary by country’s leading brokerage house, akdsecurities.com.  Dawn has termed the budget speech of finance minister as one most lethargic one the country has seen in many years. Not only the mood within parliament, but the budget proposals themselves evoked little more than weary nods.

But the apathy showed mostly in the proposals to lift revenues and rejuvenate collapsing sectors. The budget sees growing recourse to withholding taxes, turnover taxes and transaction taxes, whereas income and consumption are dropping off the taxman’s radar. These are not only regressive measures, signaling defeat in the larger struggle by PML-N government has seen as its own to broaden the tax net.

While going through details of the new tax measures may show where the incremental revenue will come from, the budget speech left little doubt that the incumbent government has comprehensively run out of ideas on tax reforms, and broadening the tax base has been lost as a priority.

PML-N began its term with tall promises to reform the power sector, broaden tax base, widen tax net and contain losses of public-sector enterprises. All that proved to be bombast, and in the closing years of its rule, the party presents a haggard look.

The government faces a daunting challenge to address the collapse in exports and agriculture, but the government came up with nothing more than more price inducements in the form of reduction in fertilizer prices or incentives in the form of zero rating of sales tax on textile exports.

One can only hope that these measures help will lift these vital sectors from the doldrums, but doubts hang heavy. The contradiction is that the revenue measures the government has resorted weigh on growth by squeezing existing taxpayers more, so whatever energy the price inducements can inject into these moribund sectors might be negated with the deleterious effects of the measures.

AKD Securities report says that the he fourth PML-N budget retains its resolve of macroeconomic stability and growth tilt by stimulating laggard sectors like Agriculture and Textile, while also promoting a documented tax base. Picking up from last year, brokerage house is encouraged by the 21% higher Federal PSDP allocation, which provides an increasing pivot towards infrastructure activities.

FY17 GDP growth target of 5.7% seems ambitious due to FY16 likely to post 4.7%. While stock market related taxation regime has been immaterially tweaked, corporate related tax measures like: 1) higher incidence of taxation on Insurance sector, 2) extension of the super tax regime for another year with a new provision which proposes to exclude Brought forward depreciation and business losses and 3) removal of tax exemption on inter-corporate dividends for companies availing group taxation relief can together materially impact business sentiments.

The budgetary implications on the market should be neutral to negative where all eyes should now be focused towards the upcoming MSCI-EM reclassification announcement on 14th of this month.

Economic targets for FY17 seem ambitious but challenging. The fiscal deficit target of 3.8% necessitates aggressive tax collection efforts. With external repayments starting next year, reliance on domestic sources for funding the deficit is likely to further exacerbate. However, on-going fiscal consolidation efforts can consequently give rise to concerns regarding necessary allocation for CPEC projects planned for completion by FY18.

 Proposed reduction in urea prices by Rs390/bag is a key positive enabling the manufacturers to clear sizable inventory stockpiles. Textiles should also benefit where recent budgetary measures, in addition to availability of gas and exemption from load-shedding are likely to improve the operating environment. With budgetary implications on the market expected to be neutral to negative in nature, investors are advised to realign portfolios towards Cements, Fertilizers, Textiles and Power sectors.