Stock Review - Stocks remain down as investors waiting for budget 2020-21 outcome.

Byline: Shabbir Kazmi

While the Federal Minister Hamad Azhar termed it a 'relief budget', investors classified it 'a status-quo' and 'disappointing'. It surprises many that the principal demand of elimination of capital gains tax for next 12-24 months that was made by the Pakistan Stock Exchange (PSX) and endorsed by the Securities and Exchange Commission of Pakistan (SECP) has been completely, which make the budget neither industry nor capital market friendly. No steps have been taken to reduce the super tax, turnover tax and corporate tax. Tax relief for new listings was also ignored. The budget cuts down subsidies, hikes petroleum levy, freezes salaries and pensions and yet fails to arrest the overall fiscal deficit during FY21.

Karachi Stock Exchange kept downward trend and closed at 34,611.23 points losing 517.35 points or 1.47 percent down on Friday last working day of the week and the announcement of the Budget 2020-21 are on the same day. Trading activities remained low as daily volumes on ready counter decreased to 177.883 million shares as compared to 270.629 million shares traded on Thursday.

Highlighting prevailing imbalances and imprudent economic approach adopted by previous governments, the budget speech was short on major taxation measures, while the expected focus on COVID-19 response was present in developments outlays. Federal Budget FY21 envisages a total budgetary outlay of Rs7,295 billion, down 11%YoY from Budget for FY20.

Net revenue receipts have been projected at Rs3,699 billion with total tax revenue at Rs5,464 billion. Of this, FBR collection target is projected at Rs4,963 billion for FY21 as against Rs3,908 billion for FY20. The targets look very optimistic keeping in view the current economic slowdown. Other Taxes have been projected at Rs501 billion with Rs450 billion coming from Petroleum levy.

Budget deficit for FY21 has been forecasted at Rs3,195 billion or 7.0% of GDP as against 9.1% for FY20. In addition to required austerity, limiting fiscal deficit to 7.0% is contingent on revenue targets where as stated above, analysts remain skeptic on GoP meeting its target

GDP growth for FY21 is projected at 2.1% contrary to negative 0.4% of GDP for FY20. At the same time, long term GDP growth is projected to reach 4.5% by FY23.

CPI is projected at 6.5% for FY21 with long term average at 6.2% for FY21 to FY23.

May 2020 volumetric offtake of oil marketing companies has been reported at 1.5 million tons, up 39%MoM but...