Stocks seen subdued as budget sidesteps PSX

Stocks are likely to languish on the lower side trading in a narrow band next week because the federal budget 2020-21 totally sidestepped the capital market leaving the investors dejected by dashing their hopes for measures to revive the bourse, dealers said.

Pakistan Stock Exchange (PSX) benchmark KSE-100 index gained 0.8 percent or 261 points to closed at 34,611 points on week-on- week basis. Average daily volumes and traded value for the outgoing week were up 44 percent and 26 percent to 226 million shares and $50 million, respectively.

Analysts said the federal budget for 2020-21 turned out to be neutral for the stock market as the government was unable to offer any direct relief to the market, although some relief was provided to listed sectors mainly related to consumers. “Due to the minimal weightage of these sectors in the benchmark index market any massive post budget rally in the stock market was highly unlikely,” they added.

The construction sectors remained in focus as reduction in federal excise duty (FED) in cement by 0.25/kg would cut the cement prices and generate sales, analysts said adding, similarly, flat steel sector would also take advantage from reduction in regulatory duty to 6 percent and 11 percent from 12.5 percent and 17.5 percent, respectively.

Another analyst said the government had proposed incentives for food sector including edible oil, seeds and citric acid, while customs duty on packaging material was also reduced, which would ease the cost of doing business for the sector.

“The budget is positive for cement, steel, foods, chemical and insurance sectors while it is neutral for banks, E&P (exploration and production), power & textile however mild negative for automobiles,” the analyst said.

Foreigners offloaded stocks worth of $7.73million compared to a net sale of $15.27 million last week.

Major selling was witnessed in commercial banks ($3.27 million) and all other sectors ($1.94 million). On the local front, buying was reported by individuals ($5.96 million) followed by mutual funds ($2.11 million).

According to a brokerage house report optimism was sourced from: a surge in international oil prices by 5 percent benefitting the energy sector, hopes of reduction in FED on cement, the government’s increased focus on reviving cyclical sector by reduction or elimination of customs and additional customs duties on key inputs, and expectation of higher allocation for PSDP.

Fears of another blow to the economy were allayed as the government stuck to its stance of avoiding a wider lockdown to stop the spread of the virus and instead focus on targeted smart lockdowns in areas of concentration.

The release of monthly automobile sales data unveiled another bad month for the local auto sector as it continues to bleed from the aftermath of COVID-19 and a general slowdown in demand.

The budget FY21 kept market participants interested amid hopes of certain incentives likely to be offered for the export-oriented industries and support for the lower income group.

Contribution to the upside was led by: commercial Banks (204 points), cements (92 points), textile composite (64 points), pharmaceuticals (56 points), and fertiliser (55 points).

Scrip-wise major gainers were UBL (63 points), LUCK (54 points), MEBL (43 points), BAFL (33 points), and FFC (31 points). Whereas, scrip-wise major losers were HUBC (67 points), OGDC (61 points) PPL (49 points), EFUG (20 points) and MARI (13 points).