What are the Budget expectations for Stock Markets?

Budgets and stock markets have had a long relationship. Normally, Stock markets tend to overreact to budget incentives. The proposed Budget 2018-19 may not have been hugely positive for the Stock Markets in policy terms. However, the markets will be looking for reforms related and a few tax-related triggers.

This may sound a bit strange but this budget could give a thrust to equity as an asset class. By focusing on reforms and the benefits of corporatization, the government has continued its pressure on non filers and non documented assets to bring into documented fold. That puts Stock Market at an advantage. Pakistan Stock Market - PSX performed exceptionally well to reach an all-time high of 53,124 points in May 2017 from 19,000 in May 2013 and its market capitalization reached almost $100 billion in 2018. However we witnessed a steep decline of more than 30% as a result of political ripple effects and implications of macro economic challenges. Also, the higher fiscal deficit is likely to be negative for stock market, which have already been going up sharply in the last few months. With current account likely to be under further pressure, that is the negative vote but look at the positive side. The massive allocations/incentives for agriculture and reforms initiatives are likely to have a multiplier effect on GDP growth. This is a lot more value-accretive for Stock Market. So at a macro level, Stock Market really do not have reasons to complain.

Stock Market Specific Measures:

·         With Holding Tax on issuance of bonus shares has been abolished.

·         Super tax to be reduced by 1% each year from FY19 onwards.

·         Corporate tax to be reduced by 1% for FY19 and will be reduced by 1% annually till FY23 for Non-Banking companies.

·         Tax on undistributed profits has been reduced to 5% from 7.5%. Moreover, condition of distributing 40% after tax profits has been relaxed to 20%.

·         Tax of 0.02% on commission earned by brokers has now been made adjustable, compared to previous.

All in all the impact of the Budget FY2018-19 on equity market would be 'Positive', while CGT and tax on dividend maintained. Overall Fertilizer, Textile and chemical to benefit while Banks, Oil & Gas to remain neutral and Auto and Cement to likely remain affect.

It is hard to say which way market sentiment would drive the Stock Market in current fragile political environment. But it needs to be underscored that this budget is significant in more ways than one!

Tips for Successful Long Term Investor

Investing is an art that anyone can learn. The difference between an investor and a trader is a lot more sensitive. But the basic difference is that an investor tends to have a longer-term perspective. Many follow analysts and a financial adviser, but they can only take you so far. They can recommend, but the best fit for you will come from making your own choices. There are some basic guidelines & rules that investors and traders across the country should follow, after all it is your hard earned money and it should be channeled wisely.

Rules to help you become a successful Long Term Investor;

1.      Your success at trading depends on your knowledge of markets. Learning to invest doesn’t happen overnight. Try to learn from the very scratch, and don’t consider yourself as an expert even if you know better the others.

2.      Take a long-term view on investing in stocks, this is the fundamental rule. You cannot hope to make money even in quality stocks invested in less than 2-3 years. Normally, a holding period of 4-5 year is what you need to be prepared for.

3.      Concentrate on a few high-quality stocks. There’s no need to own twenty or more stocks.

4.      Do your homework on the stock. There is really no alternative to solid research. Understand the business the company operates in and its prospects. Know the entry barriers and understand the competition.

5.      It is OK to be wrong but it is bad to stay wrong. It is normal for many investors to hold on to stocks where price movements go against you. That is not a very wise thing to do because idle money has a cost. Most investors, even the best among them, get a good number of their investment ideas wrong. The idea is not to fall in love with a stock.

6.      Averaging your positions is something best avoided. If you bought a stock and the price went down by 10%, the normal tendency is to buy more of the same stock to reduce the average cost. Firstly, you were wrong the first time and by averaging you are being doubly wrong. Secondly, you are increasing your exposure to one stock inordinately.

7.      Keep an audit trail of your trades. The best insights into successful investing are available when you look back and analyze your own trades. An investor has to be extremely willing to learn from his own mistakes and taking remedial action in the future.

8.      Don’t concentrate your portfolio on a handful of stories. You may rightly believe that auto industry could outperform in the next 5 years. But allocating 80% of your portfolio to auto defeats the basic grain of diversification. You need to spread your risk.

Investors should use their own judgment before investing in stocks. This skill can be learnt over a period of time. It is like planting a seed and watering it over the years for the plant to grow into a tree. It needs time and patience for the fruits to be harvested.

Higher Dividend Yielding Stocks

The quickly changing market landscape in a country like Pakistan makes it more difficult for investors to figure out what strategies will help grow their portfolio. Just when you think you’ve adjusted for market factors, like low interest rates, retirees and other investors turn to dividend paying stocks to provide them with a reliable source of income. In fact, investing in companies paying high dividend yields is often viewed as the "Sensible" or "Rainy Day" approach to creating an investment portfolio.

Stocks of the PSX:

Various companies offering shareholders a higher dividend yield, let's take a closer look at the yields of some stocks at Pakistan Stock Market - PSX.  We used AZEETRADE.COM a division of AZEE Securities, Stock Screener to pull a list of companies that are paying higher dividends in excess of 8.0% CY 2017.

Analyzing the above information reveals that top ten of the stocks in the KSE-100 Index were paying dividends of 8.0% to 15% or higher from varied sectors. 

Stocks Paying High Dividends:

Common stocks paying high dividends, we might conclude that high dividends were the result of limited internal investment opportunities.  Let's take a closer look, it helps us understand why companies offer dividends to their stockholders

Stocks that pay cash dividends to stockholders. Dividend payments are distributed to shareholders when a corporation generates profits or has a cash surplus. Some companies make regularly scheduled dividend payments. Others provide stockholders with the dividend bonus on a more sporadic basis.

There are a number of reasons to consider dividend paying stocks. Stocks that pay dividends can help generate cash flow, which can be used for living expenses or reinvested to increase the overall gains in your portfolio.

Buying dividend-paying stocks, keep in mind that the frequency or amounts of past dividend payments are not always indicators or future dividends. Companies can decide to greatly reduce the amount or frequency of dividend payments to shareholders.

What is KSE-100 Index and How to Calculate Indices:

A common question is asked in Pakistan Stock Market is " Kya Diyhan Hai Market Ka " ? However no specific answer, when the person is referring, what is the likely levels of the KSE-100? The KSE-100 is benchmark index which capture’s the general idea of the market movement. When the KSE-100 index consistently moving upwards for a longer period of time, its referred as TEZI in (Bull Market) local phrase. On the other hand, if the KSE100 are consistently moving downwards then it is generally referred to as a MANDI (Bear Market).

But what exactly is the KSE-100 and what do this indicates? How to trade the markets when the KSE-100 is going up and how to trade the market when the KSE-100 is going down? Indices are an important part of the stock market.  Here’s why we need stock indices.

As we have seen earlier, KSE-100 is a benchmark index for Pakistan Stock Exchanges. Some similar stocks are selected and grouped together to form an index. This classification may be on the basis of the industry the companies belong to, the size of the company, market capitalization or some other basis.

Market Cap Weight-age:

Market capitalization is the total market value of a company’s stock. This is calculated by multiplying the share price of a stock with the total number of stocks floated by the company.

Price Weight-age:

In this method, an index value is calculated on the basis of the company’s stock price, and not market capitalization.

Composition of KSE-100 index:

• The idea of an index is that the index should be broadly reflective of the overall Pakistan economy.
• Representation from all sectors of the PSX and includes the largest companies on the basis of their market capitalization.
• Represents over 85% of the market capitalization of the Exchange.
• KSE-100 Index is based on the free-float methodology that means only shares that are freely traded will be included in the calculation of the index values.
• The KSE-100 index is weighted based on market capitalization. The market cap is the product of the price of the stock and the number of shares of free float available. Greater the market cap, greater is the impact of the stock price movement on the KSE-100.

Azee Securities  through  its  daily  market  commentary  gives  the  highlights  of the major stocks contributors in 100-Index movement.

 
Globally, the performance of stock markets is judged by the performance of the indices. Dow Jones in the US, FTSE in the UK, DAX in Germany, Nikkei in Japan and Hang Seng in Hong Kong are the equity benchmark indices. For Pakistan, it is the KSE-100 Index!

Watch Out Crude Oil After Tension in Middle East:

Oil & Marketing Companies (OMC) climbing to 1 percent in early trade in Pakistan Stock Exchange – PSX on Thursday after further spike in crude oil prices in International market. Oil surges to $67.33, hitting 3-year higher yesterday.

One of the immediate factors helping to lift the oil prices are heaping concerns of a military escalation in Syria, but prices were some way off Wednesday's 2014 highs as bulging American supplies weighed.

Both Brent and WTI crude hit 2014 highs, after Saudi Arabia said it intercepted missiles over Riyadh and US President Donald Trump warned Russia of imminent military action in Syria.

Then Chinese President Xi Jinping showed signs of relenting in the trade spat with the United States, promising to open up China’s economy, including lowering tariffs on cars and enforcing intellectual property of foreign firms—something that the Trump administration has been eyeing for some time.

Higher crude oil price is always a concern for country like Pakistan which imports more than 70 percent of oil requirement. Government's still is falling short of target, worries about not letting fiscal deficit widen any further is a tough ask. However, imports remained under pressure due to continuation of oil prices on the higher side. The increase in fuels imports (oil, coal and LNG), both in terms of price as well as quantities, kept the balance of trade around $3 billion in March 2018.

The government may ask state oil marketing companies to absorb a potential hike on petrol and diesel retail prices or even by the centre in the run-up to the General Elections when OMCs were not allowed to hike prices in line with increase in global crude prices.

The final hour Stock Market saw activity somewhat improving as local institutional investors became active in select index names across E&Ps (+0.3%), fertilizers (-0.4%) and financials (-0.5%). Foreign Institutional Investors were net buyers of $3.84 million worth of shares during the Thursday’s trading session.