Federal budget 2010-11

The Budget Speech by the new Finance Minister, Dr. Abdul Hafeez Shaikh was more of a broad economic policy outline. The speech itself recapped economic achievements in the last 2 years of the PPP government and focused on critical areas to solidify the foundation for future growth. This means renewed focus on austerity and reducing waste, greater role of provinces in the development and a gradual decoupling of economic and political management. Laudable in this regard is a higher revenue transfer share to the provinces (40%) post the recent NFC award allowing for a more micro approach towards social welfare and economic uplift. From a macro perspective, we believe budgeted measures will work towards consolidating the improvement in economic parameters over the last 12 months. Continued vigilance on containing inflation and a call for focus towards curbing the leakage from public sector corporations are central points in our view. Apart from a handful of revenue and relief measures, the Finance Bill primarily reintroduced the provisions of the Finance Amendment Ordinance 2009 to synchronize tax statues on formation of the Inland Revenue Wing. From the listed sector perspective, budget implications remain largely neutral while on a broader view the expected imposition of capital gains tax is already reflected in the prevailing valuation set. We retain our 12,000 Index target for Dec-10 end where the impetus to valuation expansion (forward PER: 7.2x) will be foreign rather than domestic.