Cage-free bulls: Federal budget bodes well for Pakistani equity markets

Analysts remain bullish on the KSE-100 index for the fiscal year 2014.


Kazim Alam June 16, 2013
"We expect that the KSE-100 Index will be over 30,000 points in the next 12 months,” says head of equity sales at Arif Habib Limited. PHOTO: REUTERS

KARACHI:


There must be something unmistakably good for the equity market in the federal budget for 2013-14 announced on June 12 that the Karachi Stock Exchange’s (KSE) 100 Index soared 433 points, or 1.9%, during the first post-budget trading session on Thursday.


Although the KSE-100 Index dipped 0.9% on the next trading session mainly on the back of foreign institutional selling in index heavyweights, most analysts seem to agree that the federal budget bodes well for the stock market.

“We expect that the KSE-100 Index will be over 30,000 points in the next 12 months,” said Muhammad Imran, head of equity sales at Arif Habib Limited, one of the largest brokerage firms of Pakistan, while speaking to The Express Tribune on Saturday.



On the last trading session on Friday, the KSE-100 Index closed at 22,541.6 points, which means that Arif Habib Limited estimates a gain of over 33% in the benchmark index during fiscal 2014.

Speaking to The Express Tribune, the head of another big brokerage house said his company expects the KSE-100 Index to be over 28,000 points in June next year. He requested anonymity because his company has not yet released its estimate to its clients.

Perhaps the most important, though largely ignored, feature of the federal budget was the government’s apparent attempt to restore its credibility within the private sector by setting achievable growth and deficit targets, said Elixir Securities Head of Research Muhammad Azfer Naseem, while talking to The Express Tribune. “People will now trust the budget document and consider it authentic. That’s unlike the past, when the government would miss its budgetary targets by huge margins every year,” Naseem said.

Talking to The Express Tribune, Global Securities research analyst Umair Naseer said the budget is going to have an overall positive impact on the capital market in the long run because of a 1% decrease in the corporate income tax rate to 34% for fiscal 2014 coupled with an unchanged capital gains tax rate.

In a research note issued to its customers, Naseer’s brokerage house said that at least four of the eight major sectors of the economy are expected to have a positive outlook in the aftermath of the federal budget.

The oil and gas (exploration and production) sector will be better off, believes Global Securities, because circular debt resolution is likely to improve the sector’s cash-flow situation. Other sectors to benefit from the budget include power generation, telecom sector (planned 3G auction), and the cement sector due to a 50% hike in the Public Sector Development Programme to Rs540 billion.

According to Elixir Securities, the budget contains a mix of boon and bane for the banking sector. “Banks would be relieved as dividend income from mutual funds would be taxed at 25%,” it said in a research note. However, no change in the corporate tax rate has been announced for banks, as they will continue depositing 35% of their income into the exchequer.

Published in The Express Tribune, June 17th, 2013.

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