FY26 Budget Positive For Stock Market: Analysts 

Staff Report:

Islamabad: Analysts have seen FY26 budget as positive for the stock market with realistic targets and largely aligned with IMF expectations.

We view the FY26 budget as Positive for the stock market, given that the announced targets appear realistic and largely aligned with IMF expectations,” Sherman Research said in a report.

With the budget now behind us, investor attention will shift toward macroeconomic indicators—particularly inflation trends and the external account. In this context, the trajectory of international oil prices will play a key role during FY26.

It said that they do not foresee any material changes to our corporate earnings estimates, as key heavyweight sectors such as Energy and Banks remain largely insulated from new taxation measures. Accordingly, we maintain our FY26 earnings growth projection at 12%.pakistan stock market news

“We continue to recommend PSO, PPL, NBP and FABL as top picks for FY26. Meanwhile, we have replaced SAZEW and FCCL with GAL and DGKC in our preferred list,” it added.

Government to introduce mortgage financing policy with tax credits on loans for houses up to 250 sq. yds and flats up to 2,000 sq. ft. • Sales tax exemption withdrawn on imports for industrial units in FATA/PATA; phased imposition starting at 10% in FY26, increasing 2% annually to reach 16% by FY29.

FED on transfer and allotment of commercial and residential plots is abolished. Measures are viewed as Neutral to Positive for the Cement & Steel sectors.

GST on 850cc increased to 18% from 12.5%. This will increase prices of low end cars by around Rs150k.

HEVs have also been subjected to 18% against existing sales tax of 8.5%. This may compel auto assemblers to pass on the price impact to consumers.

Regulatory Duty reduced from 90% to 50% under National Tariff Policy .  A New Energy Vehicle (NEV) adoption levy has been introduced: 1% on engines below 1300cc, 2% on 1300cc– 1800cc, and 3% on engines above 1800cc (applied on the invoice price including duties and taxes).

These budgetary measures are likely to have Neutral impact on auto sector as HEV contributes only 15% of the total car sales in Pakistan.

To resolve energy sector circular debt, the Finance Minister mentioned that government will provide legal cover to Debt Servicing Surcharge on electricity to cover principal and interest cost by amending NEPRA ACT.

During FY26, government will collect total revenue of Rs1.8tn including Petroleum Levy and Royalties from energy sector, while, allocated subsidy of Rs1.0tn on electricity sector to protect domestic consumers and meet financial needs of DISCOs. • Overall, measures are seen as Positive for Energy firms, with improved liquidity expected to enhance financial health of sector players.

Carbon Levy to be imposed at PKR 2.5/litre and will increase to Rs5/ litre by the next year • For all non-filers, withdrawal of any amount greater than PKR 50,000, will be charged at 1% versus 0.6% last year. • Withholding tax on e-commerce transactions increased from 1% to 2%.

Tax rates for salaried individuals for income slab upto Rs3.2mn has been reduced to provide relief to lower and middle tiers income bracket. Similarly, surcharge rate proposed to be reduced from 10% to 9% for salaried individuals only. • Buns and rusks, which currently have a reduced 10% sales tax, are proposed to be fully exempted from sales tax on local sales, as they are essential food items for lower-income groups.

In order to facilitate the privatization of Pakistan International Airline, it is proposed to grant the exemption from the payment of sales tax on the import or lease of aircrafts. Super tax rates are proposed to be reduced by 0.5% for income slabs between Rs200mn to Rs500mn against each slab respectively.

It is proposed that the income tax and withholding tax exemptions for the FATA/PATA regions be extended for one more year, up to the tax year 2026. Government to introduce mortgage financing policy with tax credits for houses up to 250 sq. yds and flats up to 2,000 sq. ft. • Elimination of Additional Customs Duties (ACDs) over next four years. • It has been proposed to increase the tax rate on profit from loans from 15% to 20%.

Sales tax is imposed on Imported yarn in-line with the local sales tax. • Sales tax exemption on solar panels and PV modules proposed to be withdrawn, standard 18% tax to apply. • Tax on cars up to 850cc increased from 12.5% to 18%, eliminating the earlier concessional rate.

Topline said that the incumbent Government has presented its second budget today with continued and firm focus on fiscal consolidation.

Third Consecutive year of Primary surplus: The Budget FY26 anticipates whopping primary surplus of 2.4% of GDP, a third consecutive primary surplus after 2 decades. This is much higher than IMF projection of 1.6% of GDP for FY26. We believe, this difference is primarily due to higher non tax revenue projected by Government at Rs5tn for FY26 compared to Rs3.9tn projected by IMF.

This could be attributed to whopping dividend projection of Govt from SBP at Rs2.4tn for FY26, which as per IMF program, excess over 1% of GDP (Rs1.29tn) will be spent on buy back of securities.

Overall budget deficit of 3.9% in FY26, 21 year low: The government projects consolidated fiscal deficit of Rs5trn or 3.9% of GDP, a 21 year low. This includes provincial surplus estimations of Rs1.5tn for FY26 compared to Rs1.0trn surplus anticipated for FY25E.

FBR Taxes: The FBR tax revenues are expected to grow 19% to Rs14.13trn. For FY25, the govt. has revised down its FBR collection target from Rs12.97trn to Rs11.9trn. The 19% tax growth includes 11-12% autonomous growth, while remaining is new taxes amounting to Rs700-900bn, in our view. We believe, FBR will fall short of revenue targets by Rs300-500bn based on our initial estimates, which may result in imposition of new taxes in subsequent quarters or decline in expenditures to achieve primary surplus target.

Non-Tax Revenues target: The government has kept nontax revenues target at Rs5.147trn, up 5% YoY compared to revised target of Rs4.9tn for FY25. The nontax revenues includes PDL revenues of Rs1.468tn, up 26% YoY from revised number of Rs1.161tn for FY25 and central bank dividend number of Rs2.4trn for FY26. In non tax measures, Govt. has also estimated Rs105bn revenue on account of off grid levy.

Macroeconomic Indicators target: Government has set real GDP growth target of 4.2% for FY26 compared to 2.68% achieved in FY25. Segment wise, agriculture, industrial and services are expected to post growth of 4.5%, 4.3% and 4%, respectively in FY26. We maintain our FY26 GDP growth forecast at 4%.

Key Tax Measures: Government has taken several tax measures, notably, (1) Removal of FATA/PATA GST exemption by introducing 10% GST in FY26, (2) increase in tax on interest income on bank deposits from 15% to 20%, (3) introduction of GST on import of solar panels, (4) increase in withholding tax on cash withdrawal by non tax filer from 0.6% to 0.8%, (5) Imposition of Carbon Levy and EV Adaption levy, and (6) imposition and increase in withholding tax on specified  services among others.

Key relief measures: (1) Government has increased salaries and pensions for federal employees by 10% and 7-10% respectively, (2) reduction in tax on salaried class in various slabs, (3) restoration of tax credit on mortgage, (4) decrease in advance tax and FED on immovable properties, and (5) Reduction in super tax by 0.5%.

Positive for Market: Contrary to expectations of increase in tax rates on capital gain tax and dividend income from stocks, the rates have remained unchanged. This along side, reduction in super tax, and increase in tax on bank deposits will act as positive for market.

We mentioned in our strategy report dated Nov 16, 2024, that successful passage of budget FY26 in line with IMF guidelines will serve as catalyst in re-rating of market multiple to historic average of 7x. Market is currently trading at 2026E PE of 5.2x. We maintain our base case Index Target of 127,000 for Dec 2025. However, with higher liquidity amidst conversion from fixed income to equities, index can cross 150,000 mark assuming successful IMF review in Sep 2025 and political/geo-political stability,” Topline added.

Sector wise, Budget is positive for Cement, Pharma, Steel, and IPPs. While negative for Banks, and Autos. And neutral for Textile, OMCs, and Technology sector.