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Pakistan Budget FY21 Preview

Please find attached our detailed research presentation on Pakistan Budget FY21 Preview

 

• The government is expected to announce the Federal Budget for FY21 on June 12, 2020. The budget is likely to take into account the implications of COVID-19, where government will try to ease the pain of the masses due to the pandemic by focusing on job creations and relief for the businesses.
• The key challenge for the government will be restricting the fiscal deficit for the upcoming year as not only the government will have to factor in higher expenditures relating to COVID-19 outbreak, but also take hit on revenues because of the slowdown in overall economy. We believe the government will try to restrict the fiscal deficit in the budget to 8.5-9.0% of GDP for FY21 (6.5-7.0% excluding COVID-19 related expenses), where expenditures relating to COVID-19 are likely to be marked separately.
• As per news reports, government is likely to earmark Rs1trn for dealing with COVID-19 pandemic and for providing relief to the business community.
• Considering the recession, the government may try to boost economy through providing incentives to the Agriculture and Construction sectors.
• On the revenue front, government is in talks with the IMF to set collection targets for next year. The government wants to keep FBR revenue collection target at around Rs4,800bn, whereas IMF wants the same to be close to Rs5,100bn. We believe the government will once again set an ambitious FBR revenue collection target of Rs4.8-5.1trn, which we believe will be difficult to achieve.
• The Federal Budget FY21 is likely to be ‘Neutral to Positive’ for the stock market, where we believe the government is likely to prioritize relief and growth over fiscal discipline to reenergize the economy in the aftermath of losses incurred due to the COVID-19 pandemic.
• Positive budgetary measures are likely for Tractor manufacturers, Fertilizers and Cements; while budget is likely to remain largely Neutral for Banks, IPPs, E&Ps, Steel, Textile, Pharma and Consumers.
• We expect market to gradually improve in the lead up to the Federal Budget announcement, where key focus for investors is likely to be on any potential reliefs in the shape of Capital Gains Tax (CGT), Tax on Dividends, incentives for other listed sectors as discussed further in this note.
• Local liquidity will improve as flows directed towards Fixed Income (FI) are now likely to be routed towards equity markets as interest rates on FI securities (including NSS) have came down by 400-500bps in the last three months. We are Over-weight on Oil and Gas Exploration, Cements and Fertilizers; Market-weight on Banks, Power, OMCs, Steel, IPPs, Chemicals and Pharmaceuticals; and Under-weight on Automobiles and Insurance.

 

Following will be the likely budgetary impact on major sectors.

                                               

• CementPositive

 

• Fertilizer                                   Neutral to Positive

 

• Consumers                               Neutral to Positive

 

• Pharma                                     Neutral to Positive

 

• Chemical Neutral to Positive

 

• E&Ps Neutral

 

• Banks                                        Neutral

 

• Auto Neutral

 

• Steel Neutral

 

• Textile Neutral

 

• Oil & Gas Marketing                   Neutral

 

• Tobacco Neutral

 

• IPPs Neutral