Investors disappointed as expectations not met
A status-quo budget, as investors see it, has shaved off 2.2% of the stock market value, sending the benchmark KSE-100 index 767 points down Monday. Investors expecting relief for industries were disappointed with Budget 2020-21 and called it a non-event for the market.
Government officials including PM’s Finance Advisor Abdul Hafeez Shaikh had raised people’s expectations by calling it a “relief budget”. But the KSE-100 index kept losing its value throughout the day and closed below 34,000 points.
“The market expectations were high from the budget but the people are disappointed, which has reflected at the KSE-100 index today,” Research Analyst at JS Research Ahmed Lakhani said.
He, however, said the expectations were misplaced because the government couldn’t reduce taxes since it has to collect revenue.
For instance, the auto industry, which has been struggling, was expecting reduction in duties and taxes but there was none in the budget.
“There’re little changes and the budget has largely been neutral,” said Asad Ali, an analyst with BMA Research. “The market was expecting relief but the government has preferred to keep it neutral.
“If the country like the rest of the world was not inflicted upon by the Covid-19 pandemic, this budget would have been received well,” Ali said.
“However, in the backdrop of Covid-19, the budget could be termed slightly negative on the basis of the people’s expectations.”
The sectors with positive outlook are cement, steel, pharmaceutical, consumer staples and chemical, according to CFA IM Securities Saad Ali. Meanwhile, autos and tobacco have a negative outlook in the budget.
The economy may further slow down because of the locust outbreak, the unabated growth in Covid-19 infections, and local and geopolitical tensions. All these will affect investors’ sentiment, which will in turn affect the stock exchange.
From the stock market’s perspective, the budget does not encompass significant changes for major sectors, implying a neutral impact on corporate profitability outlook.
However, the surprise tax incentives for investors in the real estate sector is a potential risk for funds flow away from the equity market (local individuals have been the major buyers since last year, helping absorb continued foreign selling).
Real estate has long being considered as the parking lot for the country’s capital but the incumbent government had managed to hamper that by discouraging investors in the real estate sector.
However, with recent relaxations, experts fear investments may again start to flow towards real estate hurting the manufacturing industries.
Assessing the first quarter of the year, AKD Securities forecasts that the index could reach the 39,000 mark over the next one year in the best case scenario.
But in the worst case, assuming an aggressive, prolonged slowdown throughout first six months of the fiscal year, it predicts the index to spiral down to 27,000-point level with in the year.