Did the market react positively to the overall budget?
The market responded positively to the budget, retaining stable tax structures for gains and dividends.
Saad khan 
Islamabad: The budget for FY25 is overall positive for the market, contrary to expectations of changes in the treatment of income from capital gains and dividends to normal tax, which would have affected net returns for investors, analysts said.
The maximum rate of 15 percent tax on capital gains tax (CGT) for tax filers remains unchanged, though the slab benefits for holding securities for more than a year on purchases after July 1, 2024, have been removed. The tax rate for non-tax filers has increased from 30 percent to 45 percent. Similarly, the tax on dividends remains unchanged at 15 percent for tax filers, they added.
Despite anticipation of these measures, the market had lost 4.0 percent, or 3,186 points, in the last 12 sessions.
Topline Securities stated in its report that the lack of change in the treatment of CGT from full and final tax to normal tax is positive for the market. There were rumors that the government was considering this change, but the treatment of CGT will remain as full and final tax.
There is also no proposed change in tax rates for dividend income for both filers and non-filers. This is seen as positive for the market, as there were concerns that the tax on dividend income might increase or that the treatment of dividend income could change to normal income. The status quo on these matters, as well as no change in the bonus tax, is neutral to positive for the market.
The minimum turnover tax remains unchanged, contrary to general expectations of an increase. This is particularly beneficial for low-margin businesses like OMCs, chemicals, and steel companies.
Topline Securities believes this budget will serve as a prior action for a new IMF program. If the budget is successfully passed in compliance with IMF measures, the market's price-to-earnings (PE) ratio is expected to re-rate from the current 3.4x to the historic forward PE of 6.93x linearly over three years. By June 2025, the forward PE is projected to rise to 4.6x, setting an index target of 106,000 and providing a return of 46 percent. The index target for December 2024 is 87,000, offering a return of 20 percent.
