The market observers foresee a rosy picture for the country’s bourses as the federal government is preparing to unveil its fiscal plan for the financial year 2012-13 most probably on the first of June. Expected to be an “expansionary budget”, the new fiscal document is expected to be a balancing act between populous measures for political compulsion ahead of general elections and austerity measures to appease the international donor agencies to facilitate the country’s likely re-entry into the IMF program. The parliamentary endorsement of the Capital Gains Tax (CGT) ordinance is said to carry a positive bearing on the equity market where the investors’ sentiments are seen having got an enormous boost ever since the presidential ordinance has exempted the funders from declaring their source of income. “This budget will have ‘Positive’ implications for the stock market as the newly approved CGT ordinance is likely to be a part of Finance Bill,” said the analysts at Topline Research. The analysts believe that the new budget would largely have “neutral” affect on the big heavy-weights at the stocks market.
“We believe expansionary budget is on the card that is expected to bode well for cement and consumer sectors, slightly negative for autos while would be neutral for major sectors like E&P, power and banks,” the Topline analysts viewed. A sector-wise budgetary impact shows that the cement sector would be the sole exception to see a positive affect while impact on the auto assemblers would range from neutral to negative. Neutral would be the impact for other major sectors like the banks, exploration and production, oil marketing and refineries, power, insurance, textile, telecommunication and chemicals. The fertilizer sector, the analysts said, was lacking the excitement altogether for the coming budget as poor off-takes of local fertilizer brands during CY12TD coupled with excess availability of imported urea available at low cost, compared to locally produced, has restricted the margins of local producers. “Whereas the government was also maintaining strict stance for procuring imported urea by rejecting the option to procure 0.3 million tons of urea from local producers in place of imports,” said Hasan Raza, an analyst at InvestCap. However, he said, as the Kharif season sets up during mid of this month (May), the recent temporary decrease in urea prices by Rs 145 per bag from Faujis and Engro to stand at par with imported subsidized fertilizer was expected to liquidate piled up local inventories in the market, and would result in improved performance in 2QCY12 compared to poor performance during 1QCY12. About measures expected to be taken by the government, the analysts said major market concern regarding source of income, cumbersome CGT calculation and its rate have already been covered in the Finance (Amendment) Ordinance and was expected to become part of Finance Bill FY13. “If above ordinance becomes a part of finance bill then no source of income would be asked if investment in stock market is made for at least 45 days prior to the issuance of ordinance (April 24, 2012) or 120 days after its issuance till June 2014,” the Topline researchers said. In addition, they said, the CGT rules would be announced by the FBR providing further clarity to the ordinance, though it does not fall under the ambit of budget. Tax differential between listed and unlisted firm is proposed and we expect gradual reduction of 1-2% in corporate tax rate in Budget FY13. For other proposal like penalizing firms for low payout, reducing turnover tax, increase in T-bill income for banks, currency adjustment CGT calculation we attach low probability of these going through. The endorsement of CGT Ordinance in the budget, which had already provided impetus to the market with average daily volume improving to Rs 6 billion (US$67mn) since acceptance of SECP proposals by finance minister against Rs3.5 billion (US$40mn) in 2011, was expected to have a positive bearing on the market. Improvement in volumes would result in better tax collection for the government in FY13, while improved liquidity would help better price discovery which that would allow the companies and government to raise funds through public offering and right shares. In addition, reduction in corporate tax rate by 1-2pc would likely increase our sector earnings by 1.5-3pc. For individual sector, the analysts said, the expansionary nature of the budget would likely to bode well for cement, due to higher disbursement of PSPD, and consumer sector. On the other hand, proposed reduction in the duty structure on imported CBUs and CKDs would have a net negative impact on the auto, they added. “For others we expect the sector to be neutral,” the analysts said.
