KARACHI: Pakistan Stock Exchange (PSX) is likely to pare gains made during previous two weeks in the coming sessions as the federal budget for the fiscal year 2023-24 has failed to meet investors’ expectations.
PSX remained bullish in previous weeks amid hopes for the revival of the stalled International Monetary Fund (IMF) loan programme. The IMF mission chief for Pakistan said recently that the Fund remains in touch with Pakistan’s authorities in order to pave the way for a board meeting before the financing programme expires at the end of June. “This engagement will focus on the restoration of foreign exchange proper market functioning, the passage of a FY24 budget consistent with programme goals, and adequate financing,” Nathan Porter added.
However, the market experts believe that the budget deviates from the context of the IMF loan programme. They fear it could result in increased selling pressure on the PSX if the government and IMF part ways, although the likelihood of such an outcome remains low.
The government in the new budget has proposed several tax measures that are perceived as negative for the market. These measures include re-imposition of a 10 percent final withholding tax on the issuance of bonus shares by companies (20 percent for non-ATL), the reintroduction of a 0.6 percent tax on cash withdrawals for non-filers, and an increase in the super tax rate by six percentage points to 10 percent with retrospective impact.
The proposed measure of a 10 percent tax on bonus shares is likely to hit the market hard as the market remained bullish in recent weeks due to announcement about issuance of bonus shares by major companies. The move is expected to discourage companies from announcing bonus shares, which could negatively affect market trade volume.
However, on a positive note, the minimum turnover tax liability on turnover has been reduced from 1.25 percent to 1 percent for listed companies. This reduction will benefit loss-making and low-margin companies. Similarly, the inclusion of one more active pharmaceutical ingredient (API) and three drugs in the existing duty-free regime is seen as an incentive for the pharmaceutical sector.
Regarding the super tax, it has been rationalised to apply to all individuals earning above Rs150 million. Furthermore, the continuation of the concessionary fixed tax rate of 0.25% for IT and IT-enabled services exports for the tax years 2024, 2025, and 2026 is regarded as a positive move. Additionally, the extension of the exemption for one year on profits and gains from the sale of immovable property or shares of special purpose vehicles to any type of Real Estate Investment Trust (REIT) scheme until June 30, 2024, is considered a positive development.
The benchmark KSE-100 Index surged 1.33 percent (551.22 points) last week and gained 0.95 percent (388.44 points) in the preceding week, as investors’ sentiment remained high due to positive statements from government functionaries about the upcoming budget 2023-24.
Overall, the KSE-100 Index rose by 551.22 points to 41,904.2 points from 41,352.98 points last week, while it jumped 388.44 points in the preceding week to reach 41,352.98 points from 40,964.54 points. Among other indices, the KSE All Share Index surged by 2 percent last week to 28,253.7 points from 27,699.53 points, while KMI All Share Islamic Index surged 3.2 percent to 20,688.96 points from 20,046.65 points on a week-on-week basis.
Looking ahead, analysts do not expect an influx of buying activity in response to the budget. Additionally, the State Bank of Pakistan (SBP) is scheduled to announce its monetary policy on Monday, which will keep the market under pressure.
