June 12, 2008	Thursday	Jamadi-us-Sani 07, 1429

KARACHI, June 11: Initial reactions of the Karachi Stock Exchange on the Finance Bill 2008-09, were to term it as a ‘balanced budget’. A statement released by the bourse soon after the conclusion of the finance minister’s budget speech, stated that the KSE had reviewed the proposals, especially in the context of the capital market development in the country.

“In spite of political turmoil, persistent rising inflation and worsening of all key economic indicators being faced by the country, the various measures announced make it a ‘balanced budget”, said the KSE and thought that it aimed at averting a food crisis and boost the economy by strengthening agricultural and industrial sectors. The KSE statement said that the bourse “appreciated the government’s decision to continue with the on-going incentives for the capital market, including extension of exemption of capital gains tax (CGT) on listed shares for another two years, i.e. upto June 30, 2010 alongwith keeping the current tax regime on stock market unchanged in line with the earlier announcement made by the government after a meeting of KSE’s delegation with the relevant authorities”.

ANALYSTS: A poll of analysts at five stock brokerage houses suggested that the overwhelming feeling was that the budget was “positive” for the stock market. Mohammad Sohail, director equity broking at JS Global summed up the measures as helpful for the capital market, since the government had not only kept up its promise of extension of exemption on CGT for two more years, but it had also abstained from increasing the Capital Value Tax (CVT).

“The fears on these two accounts have been set at rest”, Sohail said. He also believed that few other concerns in the minds of stock traders had also been dispelled such as the reduction in margin for oil and banking or the levy of more taxes on those sectors. Oil and banking sectors together carry 60 per cent weightage in the KSE index.

Maheen Rahman, head of research at BMA Capital felt that the impact of the budgetary measures on the market would be neutral to positive. The analyst said that there appeared to be several moves aimed at promoting agriculture and industry as the service sector had already witnessed considerable growth.

Increase in fertiliser subsidy and exemption of duty on essential raw material were fairly good measures. The BMA analyst, nonetheless, thought that a clear policy thrust was missing. “It would have provided lot of comfort if the finance minister had spelled out a clear policy direction on how the oil subsidy would be scaled down or in what way would borrowings from SBP be reduced”.

Would the oil prices be raised? If curbs were to be placed on printing of notes, from what source would the government raise the required finances?