KARACHI: Pakistan’s main stock index rose 2.8 percent on Thursday to a record high on hopes that last week’s budget would strengthen the case for a new bailout from the International Monetary Fund.
The government’s budget was welcomed by investors as it avoided an expected increase in capital gains tax despite ambitious tax revenue targets.
Markets reopened on Thursday after a five-day break which included public holidays, extending the post-Budget rally and breaching the crucial 78,000 level for the first time in intraday trade.
Foreign portfolio investment into the market reached $83 million as of June 14, the highest level in nearly a decade, according to data compiled by Topline Securities and JS Global Capital.
Sohail Mohammed, CEO of Topline Securities, said a statement from ratings agency Fitch that the budget strengthens prospects for an agreement with the IMF would encourage further foreign inflows.
The benchmark stock index has risen 26.2 percent so far this year and has nearly doubled since Pakistan signed a nine-month standby agreement with the IMF last summer.
“Pakistani equity investors are driving the PSX higher and improving sentiment continues to unlock valuations, a trend that has been ongoing since Pakistan signed the last IMF agreement last summer,” said Amreen Soorani, head of research at JS Global Capital.
“The trend was halted briefly due to expectations of tougher capital gains taxes, which never materialized,” she said, adding that despite the recent rally, the index is still trading at four times earnings and offers an attractive dividend yield.
The financial sector rose 4.4 per cent with banks such as UBL, HBL, MCB, Bank Alfalah, Habib Metropolitan Bank and Allied Bank rising more than 4 per cent.
Adnan Sheikh, assistant vice president for research at Pakistan Kuwait Investment Company, said foreign investor interest and the central bank’s decision last week to cut policy rates by 150 basis points – the first rate cut in nearly four years – boosted the market.
Analysts said the budget and other revenue measures, apart from the capital gains tax, were in line with expectations and were key to clinching a new IMF program, which includes an aggressive tax rate target of nearly 40% higher than the current fiscal year and a sharp cut in the fiscal deficit to 5.9% of GDP from 7.4% this fiscal year.
Sheikh said tough budget measures to secure new IMF funding were likely to attract more foreign investors to the market, adding to current inflows.
Pakistan’s lower house of parliament is due to meet later on Thursday to discuss the budget presented by the government last week.
