Stocks likely to witness low activity amid short trading week

KARACHI: Pakistan stocks increased during the outgoing week, as investors’ fears were washed away with the FY25 budget, which was welcomed while the market would open for two days only next week due to Eid holidays, where low volume is expected.

“With Eidul Azha falling in the upcoming week, the market will be open for only two trading days, resulting in lower activity,” stated a research report of brokerage Arif Habib

Ltd. “Despite the shortened trading period, investors will closely monitor developments related to the new IMF program.”

Fears of a large hike in dividend and capital gains taxes kept the market uneasy even after the policy rate was lowered by 150 basis points earlier in the week.

The budget included a lower-than-expected increase in the capital gains tax while keeping the dividend tax, which caused market sentiment to move positively as the week went on.

This adjustment sparked bullish activity, which resulted in a record day-over-day surge in the index on Thursday of 3,411 points. As a result, on Friday, the market hit a record high of 77,310 points.

The KSE-100 index closed at 76,707 points, witnessing a significant gain of 2,953 points or 4.00 per cent week-on-week. Average volumes arrived at 410 million shares (down by 3.3 per cent WoW), while the average value traded settled at $61 million (down by 1.7 per cent WoW).

Foreign selling was witnessed during the week, clocking in at $5.8 million compared to a net buy of $4.4 million last week. Major selling was witnessed in exploration & production ($2.7 million) and all other sectors ($1.8 million). On the local front, buying was reported by mutual funds ($11.1 million) followed by companies ($7.9 million).

Sector-wise positive contributions came from commercial banks (1,449 points), fertilizer (406 points), E&P (362 points), cement (244 points), and power generation & distribution (150 points). Scrip-wise positive contributors were UBL (357 points), MCB (328 points), BAHL (185 points), MEBL (176 points), and BAFL (170 points).

The sectors that mainly contributed negatively were textile composite (95 points), chemical (56 points), and technology & communication (9 points). Meanwhile, scrip-wise negative contributions came from ILP (99 points), COLG (63 points), PTC (19 points), KEL (17 points), and NBP (11 points).

Analyst Shagufta Irshad at JS Research said investors welcomed clarity over Capital Gains Tax (CGT) which was not as draconian as first thought to be and would remain at 15 per cent for filers. The FY25 budget has a total outlay of Rs18.9trn compared to the ambitious revenue target of Rs17.8trn, taking FY25 fiscal deficit target to 5.9 per cent of the GDP.

On the expense side, the government announced 80 per cent jump in the PSDP to Rs1.4trn and 27 per cent increase in subsidies.

Key revenue measures announced by the government include an increase in PDL on petroleum products from Rs60/litre to Rs80/litre, shift in tax regime for exports from presumptive taxation to normalised tax regime, shifting advance tax on autos from engine-based fixed rupee amount to a percentage of the vehicle value, disallowance of certain provisions as expense for banks, increase in FED on cement, increase in taxes for real estate and specifically higher taxes for non-filers.

The textile sector underperformed the broader market during the week due to adverse implications of the change in the tax regime for exporters.

Nabeel Haroon, an analyst at Topline Securities, said this positivity in the market could be attributed to the FY25 budget which was better than market expectations; tax rate on dividend and capital gain from stock market for filers was maintained whereas there was increase in tax on dividends from mutual fund deriving more than 50 per cent income from profit on debt and increase in CGT from 3.0 to 15 per cent on property.