KARACHI: A status quo in capital gains tax (CGT) and dividend rates increased equity investor optimism, as the overall thrust of the federal budget remains on fiscal consolidation, which sparked renewed buying interest across the board, propelling the benchmark KSE 100 index to an all-time high in the outgoing week.

However, the market came under pressure by the end of the week on news of the 50pc tariff on steel by the US on its trading partners and an attack by Israel on Iran in which senior military personnel lost their lives, increasing tension in the Middle East.

The market opened the week on a positive note, with momentum strengthening after the announcement of a stock market-friendly federal budget FY26. Contrary to expectations, according to Arif Habib Ltd (AHL), there was no hike in CGT or dividend taxes. In contrast, a proposed increase in tax on interest income made equities a more attractive asset class.

However, sentiment turned cautious amid heightened geopolitical tensions in the Middle East, which led to increased uncertainty in global markets and exerted pressure on the local bourse.

At a T-bill auction, the government raised Rs853.5bn against a Rs900bn target, with strong participation of Rs2,992bn and yields declining by 1-25bps across all tenors. Auto sales surged 40pc month-on-month and 35pc year-on-year to 14,800 units in May, reflecting a recovery in demand. Meanwhile, the SBP’s foreign exchange reserves rose by $167m to $11.7bn, while the rupee depreciated by 79 paise to close at Rs282.96 against the dollar.

The market reached a new all-time high on Wednesday, closing at 124,353 points. It extended the bullish spree in the subsequent session and hit an unprecedented peak above 126,500 in early trade on Thursday, but profit-taking by a section of investors forced it to close in the red.

As a result, the benchmark KSE 100 index added 503 points or 0.4pc to settle at 122,143.57 points week-on-week.

The sectors that contributed positively were cement (341 points), power generation and distribution (311 points), commercial banks (147 points), fertiliser (137 points), and oil and gas exploration (111 points). Meanwhile, sector-wise negative contributions came from tech and communication (150 points), chemicals (68 points), automobile assembler (64 points), refineries (56 points), and food and personal care products (51 points). Scrip-wise positive contributions came from Packages Ltd (427 points), Fauji Fertiliser (161 points), Maple Leaf Cement (85 points), Mari Energies (66 points), and United Bank (64 points).

Whereas, scrip-wise negative contributors were Engro Fertiliser (69 points), Systems Ltd (68 points), Hub Power (61 points), K-Electric (45 points) and Colgate-Palmolive (35 points).

The foreigner selling this week clocked in at $7.43 million, compared to a net sell of $14.70m last week. Major selling was witnessed in banks ($3.2m), followed by E&P ($3.0m). On the local front, buying was reported by banks/DFIs ($8.1m) and individuals ($3.4m).

The average trading volume rose 37.3pc to 906.8m shares, while the value traded jumped 33.3pc to $131.5mn week-on-week.

Other significant developments include remittances surging to $3.68bn in May, with FY25 inflows reaching nearly $35bn. The Finance Bill 2025-26 proposed over Rs415bn in new taxes. The FBR also imposed a new ‘Energy Vehicle Adoption Levy’ on locally made and imported vehicles.

According to AHL, equity market participants will focus next week on the monetary policy announcement scheduled for June 16, which is expected to remain unchanged following the resurgence of inflation in May. Additionally, market performance will be closely linked to developments on the geopolitical front. With heightened tensions in the Middle East, attention will be on the anticipated US-Iran meeting set for Sunday. Any signs of de-escalation from this meeting could lead to a market recovery.

AKD Securities projects a positive outlook for the market in the coming weeks, anticipating that the federal budget will have a broadly positive or neutral impact across most sectors. Additionally, there is potential for a rate cut during the fiscal year 2025, as inflation is expected to remain around 7.0pc.

The KSE100 is expected to continue its upward trend, with a target of 165,215 points by the end of December. Strong earnings in the fertiliser sector primarily drive this growth, sustained returns on equity in banks, and improving cash flows for exploration and production companies and oil marketing companies. These sectors are likely to benefit from decreasing interest rates and overall economic stability.

Published in Dawn, June 15th, 2025