CGT cut set to stoke stocks

Stocks swung wildly in the week to end barely changed because of budget caution; however a cut in a tax on securities is likely to stoke sentiments down the road, dealers said.

The KSE-100 shares index gained 0.19 percent or 93.02 points to close the week ended June 11, 2021 at 48,304.72 points.

Topline Securities in a note said stocks inched up 0.2 percent during the week as the investors weighed 20 percent sequential increase in trade deficit, record remittances by overseas Pakistanis and pro-business and pro-people budget announced by the Finance Minister Shaukat Tarin on weekend.

KSE-30 Shares Index declined 0.89 percent or 175.92 points to close at 19,478.73 points. An analyst at Pearl Securities said the benchmark index moved both ways during the week as Pakistan met 31 of 40 FATF recommendations, Rs89 billion disbursement to independent power producers (IPPs). “Moreover continuing IMF negotiations and KSA approving financing of SR901 million for financing of Mohmand hydropower dam also guided investor sentiment,” the Pearl Securities analyst said.

Ali Zaidi at JS Global Capital said the benchmark index closed the volatile week nearly flat.

Even though investor participation declined marginally this week, it was by no means unhealthy, zaidi said.

He added that traded volumes averaged at 1.08 billion shares a day, while average value of traded securities was recorded at $162 million/day.

Moreover, net selling by foreigners went up this week, particularly in index heavyweight sectors.

Most of the foreign selling was absorbed on the local side by mutual funds.

Over the week, the government finally cleared Rs89 billion to 20 IPPs.

Moreover, news flows related to the Federal Budget FY22 continued to pour in during the week that helped build positive expectations for an accommodative budget.

Moreover, the FATF Asia Pacific Group (APG) has cleared Pakistan on 22 more points. Other news flows during the week included cumulative inflows of $1.25 billion in Roshan Digital Accounts, record 34 percent increase in remittances in May 2021, and trade deficit widening by 30.6 percent to $27.488 billion in 11MFY21.

A report issued by KASB Securities noted after ages, Pakistan’s government had taken pro-stock market investor measures by reducing the Capital Gains Tax (CGT) to 12.5 percent from 15 percent, reducing turnover tax to 1.25 percent and removal of withholding tax (WHT) on margin financing.

“The market will react very positively on the CGT news,” CEO KASB Securities Arsalan Soomro said.

“Investors have been asking for lower tax rates since it’s a documented source of investment and the government’s yielding to the demand will be a win-win for investors and governments,” Soomro added.

He further said this fiscal year would be full of optimism and strong bull-run as long as oil prices do not go out of control.

An analyst at JS Global Capital said with abundant incentives for various sectors across the board and some relief over CGT on stocks, the local equity market was likely to celebrate the Federal Budget FY22 going forward.

“We highlight construction-oriented sectors, autos, export-oriented sectors, technology sector, food sector and other manufacturing sectors as key beneficiaries of the Budget FY22,” the analyst said.