On Thursday, the Pakistan Stock Exchange (PSX) witnessed a significant rally as the KSE-100 index soared by over 1,700 points in intraday trading. This bullish trend came a day after the government unveiled its budget for FY2024-25, with the market responding positively to the proposed financial measures.
Market performance
The KSE-100 index experienced a substantial increase, rising by 1,707.83 points, or 2.35 per cent, to reach 74,505.26 points by 10:49 AM, up from the previous close of 72,797.43 points. This surge marks a strong recovery for the PSX, which had been under pressure in the days leading up to the budget announcement.
Factors driving the rally
Several market analysts have attributed the rally to specific aspects of the new budget that alleviated investor concerns. Mohammed Sohail, CEO of Topline Securities, pointed out that the market was buoyed by the absence of new taxes on dividends and capital gains tax (CGT) for investors. This sentiment was echoed by Raza Jafri, CEO of EFG Hermes Pakistan, who noted that the market reacted positively to the softer CGT measures for tax filers, which contrasted sharply with pre-budget fears.
Positive reception of enforcement measures
In addition to favourable tax policies, the market also responded well to the government’s plans to tighten measures against non-tax filers, as well as certain sectors like retail and real estate. While there are concerns about the enforceability of these measures, the initial response has been optimistic.
IMF considerations
The budget is seen as a strategic move to align with the International Monetary Fund’s (IMF) expectations, which is crucial for securing a new bailout. Jafri expressed confidence that the IMF would find the budget acceptable in its current form. He emphasised the need for the government to remain steadfast in implementing and enforcing the proposed measures.
Analyst insights
Shahab Farooq, Director of Research at Next Capital Limited, observed that the market had been under pressure due to uncertainties about potential tax measures influenced by IMF guidelines. The budget, however, alleviated these concerns, leading to a positive market reaction. Farooq also indicated that the IMF is likely to approve the budget, particularly due to its focus on enhancing economic documentation by targeting non-filers and the real estate sector.
Yousuf M Farooq, Director of Research at Chase Securities, described the current market surge as a relief rally. He noted that investors had been wary of potential increases in CGT and dividend taxes, which did not materialise in the budget.
Adnan Sheikh, Assistant Vice President at Pak Kuwait Investment Company, highlighted the impact of the recent 150 basis points policy rate cut, suggesting that this, combined with the budget, could lead to record market performance. He emphasised that equities remain the best medium-term investment option.
Sector-specific reactions
The budget’s impact on various sectors has been mixed. Textile stocks have faced pressure due to the shift from a final tax rate of 1pc on goods exports to normal taxation. Conversely, construction-related stocks have benefitted from increased allocations to the Public Sector Development Program (PSDP) and supportive measures for the steel industry.