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Wednesday, July 17, 2024  
10 Muharram 1446  

Pakistan stocks hit record high on budget, IMF optimism

Foreign portfolio investment in the market is at the highest in almost 10 years

Pakistan’s benchmark share index rose 2.8% to a new record high on Thursday, driven by expectations last week’s budget will strengthen the case for a new bailout from the International Monetary Fund.

According to the PSX website, the KSE-100 index closed at 78,801.53 level after gaining 2,094.76 points against the previous closing of 76,706.77 level.

The government’s budget was welcomed by investors as it avoided an anticipated increase in capital gains tax, despite an ambitious tax revenue target.

The market extended its post-budget rally on Thursday when it reopened after a five-day break, which included a public holiday, and breached the key 78,000 level of for the first time during intraday trade.

Foreign portfolio investment in the market is at the highest in almost 10 years, with inflows of $83 million as of June 14, data compiled by Topline Securities and JS Global Capital showed.

Sohail Mohammed, CEO of Topline Securities, said that a statement from credit rating agency Fitch that the budget would strengthen the prospects for an IMF deal would help to bring more foreign inflows.

The benchmark share index is up 26.2% year to date and has almost doubled since Pakistan signed a nine-month standby arrangement with the IMF last summer.

“Pakistani equity investors are driving the PSX higher, continuing to unlock valuations on better sentiment, which is a trend that began when Pakistan signed its last IMF deal last summer,” said Amreen Soorani, head of research at JS Global Capital.

“The trend paused briefly on anticipation of stricter capital gains taxes, which did not materialise,” she said, adding that the index is trading at a four times price to earnings ratio despite the recent rally and offers attractive dividend yields.

The financial sector was up 4.4%, with banks like UBL, HBL, MCB, Bank Alfalah, Habib Metropolitan Bank, Allied Bank , up more than 4%.

Adnaan Sheikh, assistant vice president of research at Pak Kuwait Investment Company, said that foreign investor interest and the central bank’s decision to cut its key rate by 150 basis points last week - its first rate cut in nearly four years – had pushed the market up.

Apart from the capital gains tax, analysts said the budget and other revenue measures were in line with expectations and key to sealing a new IMF programme. This will include a challenging tax target of a near-40% jump from the current year, and a sharp drop in the fiscal deficit to 5.9% of GDP from 7.4% for the current year.

Sheikh said the strict budgetary measures to secure new IMF funding will be likely to attract more foreign investors to the market, in addition to the current inflows.

Pakistan’s lower house of parliament is set to meet later on Thursday to debate the budget that the government presented last week.

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