PSX greets budget with massive optimism

KSE-100 index records substantial gains of 2,953 points, settles at 76,707

KARACHI:

Despite initial jitters over potential increase in capital gains tax and dividend taxes ahead of budget presentation, the Pakistan Stock Exchange (PSX) zoomed to a record high above 76,700 points later in the outgoing week when clarity emerged about the government’s budget measures.

It was a record-breaking week as the KSE-100 index eclipsed the previous all-time time with a record-high close for two consecutive days. Also, the bourse notched up the biggest single-day gain of over 3,400 points in post-budget trading.

In particular, monetary policy announcement at the beginning of the week, where the State Bank of Pakistan (SBP) slashed its policy rate by 150 basis points, release of Economic Survey 2023-24 and budget presentation were in focus.

During the week, the SBP conducted a successful treasury bills’ auction, raising Rs1,208 billion, which exceeded the target of Rs780 billion. The market gained momentum as the auction saw a significant decrease in cut-off yields across different maturities.

Day-by-day movement of the market showed that on Monday stocks came under mounting selling pressure as it lost around 500 points amid pre-budget uncertainty and cautious trading ahead of the SBP’s monetary policy announcement later in the day.

Next day, the bourse also slid notably, primarily owing to investor fears over potential announcement of tough tax measures in the federal budget for fiscal year 2024-25.

On Wednesday, some pre-budget optimism emerged as the KSE-100 index rebounded following two consecutive sessions of significant declines.

Bulls returned with a bang on Thursday in a post-budget rally, who propelled the KSE-100 to an all-time high above the 76,000 milestone with the biggest single-day surge of around 3,400 points.

On Friday, stocks extended the rally and soared to another record high as investors were enthused by no announcement of tax hikes on dividends and capital gains, the rupee recovery and plans to launch Eurobond in the international market.

The benchmark KSE-100 index closed the week at 76,707, marking substantial gains of 2,953 points, or 4% week-on-week.

JS Research analyst Shagufta Irshad, in her report, said that the KSE-100 rallied 5.4% following the announcement of FY25 budget, taking weekly gains to 4%, or around 3k points. The index hit an all-time high of 76,707.

“Investors welcomed clarity about the capital gains tax (CGT), which was not as severe as initially feared, as it would remain at 15% for filers,” she said.

The FY25 budget has total outlay of Rs18.9 trillion compared to the ambitious revenue target of Rs17.8 trillion, with fiscal deficit at 5.9% of gross domestic product (GDP).

On the expense side, the government announced an 80% jump in the Public Sector Development Programme (PSDP) to Rs1.4 trillion and 27% increase in subsidies. Some key revenue measures included an increase in the petroleum development levy (PDL) from Rs60 per litre to Rs80 per litre, a shift in the tax regime for exports from presumptive taxation to a normalised tax and a shift in advance tax on autos from an engine-based fixed rupee amount to a percentage of vehicle value.

The textile sector under-performed the broader market due to adverse implications of the change in tax regime for exporters, the JS analyst added.

Arif Habib Limited (AHL), in its report, noted that despite a 150-basis-point cut in the policy rate at the beginning of the week, the market remained jittery due to concerns over a significant increase in taxes on capital gains and dividends.

As the week progressed, investor sentiment shifted to the positive side when it was revealed that the federal budget for FY25 included a lower-than-expected increase in the capital gains tax while maintaining the dividend tax. This change spurred bullish activity, leading to a record day-on-day increase of 3,411 points on Thursday, it said.

Consequently, the market reached an all-time high of 77,310 points. Additionally, the SBP raised Rs1,208 billion through a T-bills’ auction, surpassing the target of Rs780 billion. During the auction, the cut-off yields for different maturities decreased significantly.

The SBP’s foreign currency reserves depicted a meagre decline of $6.2 million to $9.1 billion.

Sector-wise, positive contribution came from commercial banks (1,449 points), fertiliser (406 points), exploration and production (362 points), cement (244 points) and power generation and distribution (150 points).

During the week, foreign investors sold shares worth $5.8 million compared to net buying of $4.4 million in the previous week, AHL added.