KARACHI – The time has come for the government to display resolve rather than mumble on new taxation measures in order to reduce the probability of a greater budget deficit, triggered by a lower resource basket.
Income tax surcharge of 15 percent on salaried income, GST imposition on fertiliser, withdrawal of GST exemption on plant, machinery and enhancement of SED to 2.5 percent from one percent are likely to enhance taxation revenue by Rs 53 billion, while ambitious cost cutting measures may contract the cost by Rs 67 billion.
During the week, SBP announced the current account number, which posted a meager deficit of $98 million. Despite global conomic woes, Pakistan’s economy is taking advantage from the hike in cotton prices in international market, which boosted export value instead of export volume of textile products.
The market carried the dicey momentum, as the index lost almost 439 points during the week, closing at 11,606 points with an average daily volume of 112 million shares. Market sentiment seems weak despite launch of MTS from Monday, enhancing liquidity for investors. Foreign fund managers seemed fearful following Japan’s natural catastrophe followed by nuclear power calamity.
Furthermore, Pakistan’s economic and geo-political situation has hit investors’ sentiment. Hence, foreign funds showed massive stock selling of $16.82 million at local market counters. Activity of local fund managers remained weak, while prudent investors preferred to wait at the bay for healthy correction before reentering the market.
Surprising political events including the release of Raymond Davis court happened during the week, erupting violence and anger among masses. A closer look at individual stocks shows that over 60 percent of the stocks were traded in negative territory, while rest of the companies posted gains. Among the gainers, few stocks were able to book gains.
UBL, OGDC, FFBL and HBL were among the top losers. This clearly depicted that prudent investors were not interested to invest at current levels. “We believe that the market will remain lackluster in the upcoming days, in absence of any major trigger”, said Bilal Asif at HMFS. He added that global economic condition post Japan catastrophe would impact global economic affairs.
The week saw PIB auction, in which the SBP raised Rs 46 billion against the target of Rs 15 billion. Yields in the primary market declined in 5-year paper by 18bps to 14.11 percent followed by three year paper, where yield declined by 17bps to 14.08 percent. Yields in the secondary market have remained firm, with 6M KIBOR trading at mid quote of 13.6 percent.
The government borrowing from the central bank has spiked up again by Rs 394 billion as money supply has showed an expansion of 8.78 percent. Current account surplus in the preceding month, decelerating inflationary pressures and measures to boost government revenue, are likely persuade the central bank to maintain status quo during the upcoming monetary policy, to be announced later this month.
Retraction in market yields is likely to instigate a shift in investors’ participation.
