KARACHI: The single session trade in the outgoing week saw investors dump stocks on Monday with the KSE-100 Index recording a fall of 469 points (1.3pc) and close at 35,505.

There were many disenchantments a day before the Eid holidays that caused investors to trim their positions, but the worries centered on two key issues that are likely to set the direction of the market in the weeks going forward. Those include the developments on the Market Support Fund and the upcoming budget 2019-20.

The finance minister had assured that all procedural matters were settled and approvals obtained and the Securities and Exchange Commission of Pakistan chairman indicated the launch of government supported funds in the next 10 days after the approval by the Economic Coordination Committee (ECC) of the Cabinet. Since the ECC had already given its nod, the market would be expecting the support fund of Rs20bn be follow on the heels of the upcoming budget. It would also help mitigate some of the possible harsh measures in the budget.

In their budget preview, Arif Habib Ltd said that broad proposals directly impacting the equity bourse included alignment of Capital Gains Tax (CGT) on securities with the rates of CGT on sale of immovable property, whereas companies could feel the brunt of continuation of super tax on corporates’ earning above Rs500m and corporate tax rate at 29pc, together with other revenue and taxation measures translating into negative bearings.

From sectoral perspective, AHL expect the budget to be negative for the following sectors: cement, due to possible increase in Federal Excise Duty (FED) by Rs500 per tonne along with stagnant to negative PSDP allocation; Textile due to possible elimination of zero-rated regime, steel because of hike in GST and autos as a result of increase in FED along with higher GST.

Topline Securities reckoned that the budget 2019-20 would not bring any major excitement for the stock market. “Rather it could be negative especially for cyclical sectors” such as cement and steel, fertiliser and chemical if key measures like continuation of corporate tax rate at 29pc, re-imposition of super tax for non-financial companies, increase in excise, GST and turnover taxes among others are implemented.

Topline has set their index target for Dec 31, 2019 at 38,000 to 42,000 points.

Published in Dawn, June 9th, 2019