The FY12 budget had mixed results for the market as most measures adopted left key sectors unscathed. The benchmark gained 141 points to close at 12,378 with average daily volumes depicting a marked improvement to 112 million shares. Although the market faltered in early reaction as economic managers chose to ignore the key issue of CGT, stock specific advancement especially in fertiliser, banks and oil & gas sector scrips provided ample support to the local bourse. Foreign investor participation remained lackluster, wary of improvement in fundamentals. FY12Budget appears to be an act of fiscal juggling with modest GDP growth target of 4.2 percent and fiscal deficit target of four percent. Withdrawal of sales tax exemption on list of items to boast the revenue base was counterbalanced by lowering GST by one percent to 16 percent and exemption of special exercise duty on 397 items. Banking sector was able to avoid rise in corporate tax rate leading to lowering risk premium and heft advancement at the bourses. Despite the withdrawal of subsidies and sales tax exemption on phosphoric acid which negatively impacted on fertiliser manufacturers, the sector outperformed the index during the week as local demand was robust due to a shortage of urea. Reduction in FED by Rs200 per0 tonne and GST by one percent on cement was a good omen for the sector as both leading scrips, DGKC and LUCK put up strong performances.
The government has expressed an intention to completely eliminate tariff differential by the end of FY12, however no significant measures were taken in the budget regarding immediate resolution of circular debt whilst oil and gas sector was completely ignored. Furthermore, discovery at Domial field, announced during the week, bolstered investor’s interest in POL (stake of 80 percent) which further spilled over into the energy sector at the bourse. In the absence of major encouraging factors, performance at the local bourse is likely to remain range bound. However, with the fiscal year drawing to close and result season set to commence in the weeks to follow, pre-result rally can yield dividends for astute investors. Additionally, MSCI is to announce result of its 2011 annual market classification review on June 21, 2011 which may generate local interest.
Money supply continues to hover around 11.73 percent at the end of 11MFY11 with growth in NDA providing impetus. GoP borrowing for budgetary support has breached PKR600bn during 11MFY11 as strain on fiscal finances strangles hold whilst financial year draws to the close. Liquidity squeeze subsequent to hefty government borrowing has caused KIBOR to notch up by 13bps to midquote of 13.65 percent said Salman Vidhani at HMFS, adding that the Pakistani Rupee continue to depict resilience against the greenback, depreciating by a meager 0.26 percent, despite widening differential. High market yields and strengthened external account position has bolstered endurance of PKR. With government’s inflation target of 12 percent for FY12, absence of uncertain factor yields should come down with rate of inflation possible benefiting the investors opting to position on the long end of the curve.
