LAHORE The budget related news flow drove the investors sentiments during the outgoing week with the KSE witnessing a mixed trend, closing at 12,237 level, showing an increase of just 0.1 percent WoW. Volumes witnessed an improvement by 24 percent WoW or 103 million shares on the rumours that the government may switch CGT with transaction tax for individuals. Refineries and OMCs remained in the limelight on news of partial deregulation of petroleum prices. The Economic Survey was also released, with FY11 GDP growth reported at 2.4 percent. Real GDP is estimated to grow at 2.4 percent in FY11 (3.9 percent in FY10) owing to resilient performance of services sector which grew by 4.1 percent (target 4.7 percent) in FY11. Fixed investment share in GDP dropped to 11.8 percent from 13.4 percent in FY10. Revenue collections by FBR stood at Rs 1,156bn in 10MFY11, reflecting 12.6 percent YoY growth. CPI in 10MFY11 rose to 14.1 percent as against 11.5 percent in the corresponding period last year. Ahsan Mehanti, Director, Arif Habib Investments Limited observed that bullish sentiment was lead by oil and cement sector scrips on expectation of favourable budget announcements. Focus on higher PSDP allocation and oil & gas production targets in the federal budget, expectation of favourable announcements for capital market investors kept the sentiment positive at KSE despite concerns for rising government borrowing, inflation and lower economic growth indicated in Economic Survey 2010-11 unveiled on June 3. Moreover, banks remained underperformers on concerns over rising NPLs along with IPPs as the circular debt continues to create cashflow woes. Foreigners continued to be net buyers of worth US$7.1mn while mutual funds came out as net sellers of US$5.9mn. MTS investment (Mon-Thur) stood at Rs213mn, rate at 16.95 percent. Experts said that individual investors will continue to pay 10 percent CGT if shares sold within 6 months & 8 percent between 6-12 months. Banks, insurance firms, mutual funds and other corporate will continue to pay CGT as per their specific rules/ordinance and there is no change in this Budget. Quarterly CGT filling deadline for corporate extended to 21 days from 7 days. No major changes made on the turnover tax on shares trading and taxes on stock brokers. For individuals investing in IPO, present tax credit limit of 300k or 10 percent of taxable income is now raised to Rs500k or 15 percent which ever is lower if those shares are held for at least 36 months. Discontinuation of 15 percent flood surcharge imposed in March 2011 on companies profits. Thus listed companies will pay 35 percent corporate tax in FY12 compared to average tax of 38 percent (including 40 percent imposed in last three and a half months of FY11). Enhancing tax rebate to 15 percent from 5 percent for the year in which the new company is listed. That is the new company coming for listing will pay 29.75 percent rather than 33.25 percent in the first year of listing. 100 percent tax credit on corporate industrial undertakings which are 100 percent equity financed up to 5-years after commissioning. The same will be applicable for new BMR activities. Sales tax reduced from 17 percent to 16 percent. This will help to curb high inflation to some extent and thus interest rates in the economy. 10 percent final tax on individual investors on investment in T bills and PIBs will help in the development of debt market and will help in attracting foreign investment in government papers. This will shift some funds away from the equity market. Although the initial reaction at Karachi bourse would be negative as it was expected that the government may give relaxation to retail investors in CGT after failing to receive any substantial revenue due to 8-year low volumes. After the recent round of meetings with Ministry of Finance and FBR, it was expected that CGT may be deferred at least for the individual investors who have been deserting the market causing volumes in FY11 to decline to 8-year low of Rs4bn a day down 50 percent from last year. This will not only affect the market depth and volumes but will have adverse implications to the government plan to privatize its units through the stock market. Pakistans once vibrant and actively traded Karachi bourse that used to trade Rs40b a day in cash (Rs28b) and single stock futures (Rs12b) on an average is on the verge of loosing its once famous slogan of most liquid market of Asia and the government has totally ignored this market once gain.