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Pakistan stocks fall further, budget fails to impress

Reuters - Wednesday, June 17

KARACHI, June 16 - Pakistani stocks extended losses on Tuesday, as budget proposals for a new tax on companies involved in exports helped dampen investor sentiment.

The Karachi Stock Exchange's benchmark 100-share index <.KSE> ended 1.15 percent, or 80.13 points, down at 6,872.96. The index fell 1.51 percent on Monday.

Turnover was about 55 million shares, down from 89 million shares the previous day.

"The new tax on exporter will effect quite a few companies, such as cement exporters, and it will be negative for the market sentiment," said Mohammed Sohail, chief executive of Topline Securities.

According to the budget document, exporters will now be paying 35 percent tax on their net profits, whereas previously they were generally paying only 1 percent on the export proceeds, said Sohail.

Dealers said investors were also cautious about the security situation in the country, with the army preparing to launch an offensive against the stronghold of Pakistani Taliban leader Baitullah Mehsud in the South Waziristan tribal region.

In the currency market, the rupee <PKR=> was little changed at 81.05/10 to the dollar, but dealers expected it to weaken due to doubts about a recovery in economic growth.

The government said it expected the gross domestic product to grow 3.3 percent in 2009/10, compared with 2 percent in the fiscal year ending June 30, but many analysts say the target seems ambitious.

Despite the nominal growth rate, Pakistan is in a virtual recession as its 170 million population is growing by more than 2 percent annually, and more than a third of the people are living in poverty.

(For a summary of the budget's main forecasts, measures and plans, click on [ID:nISL409102])

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