KSE-100’s worst decline in 30 weeks

KARACHI: The KSE-100 index witnessed its steepest decline in 30 weeks as the benchmark index shed 3.9 per cent (400.55 points), during the week ended May 21.

The week began with the news regarding the International Monetary Fund’s disbursement of the fifth tranche of $1.13b and was expected to have a positive impact on the market. Instead, the opening day of the week saw the market drop sharply by 2.35 per cent (238 points) due to pressures stemming from the Greek debt crisis.

Despite an announcement of a bail-out package in the previous week, stock markets around the world, continued to make losses. Global stock markets remained crippled throughout the week as was evidenced by the Morgan Stanley Capital International (MSCI) Emerging Markets index shedding 8.1 per cent while the MSCI World Index declined by 5.7 per cent.

To further add to the market’s pressure, global oil prices witnessed a steep decline and fell to as low as $70 per barrel, triggering concerns in the Energy and Power Sector, which is by far the most heavily-weighted sector on the index. Downward revisions in the total reserves in the Tal and Makori fields also contributed to the market’s woes as the impact of the revisions will reflect in a 7-9 per cent decline in Pakistan Oilfield’s bottom line, while Pakistan Petroleum Limited’s earning will also decline by around 2-3 per cent.

Investor sentiments were not helped by the confusion surrounding the implementation of the Capital Gains Tax, and investors chose to remain sidelined and preferred to wait for clarity regarding the budget which can be announced as soon as June 5. On a positive note, foreigners remain net buyers during the week, but barely so.

Net foreign inflow for the week stood at $5.8m, down 12 per cent from the previous week. It seems that inflows have peaked out after the high inflows seen in March, which rallied the market to above 10,500 points. The auto sector was a major outperformer during week, as shares of the Indus Motor Company climbed seven per cent, after the company registered record sales in the month of April. Shares of Pak Suzuki Motor Company also gained 0.3 per cent during the week.

The only positive to come out of the index closing flat was the end to the declines witnessed in the previous two weeks, during which the benchmark index dropped 3 per cent. During the week, average volumes declined sharply by 11.2 per cent to 84m shares per day, the lowest in 25 weeks. While a majority of trading took place in second-tier stocks like LOTPTA, there was significant selling activity in oil stocks which led to average daily value improving by 13.3 per cent to Rs2.83b per day.

Total market capitalization of the Karachi Stock Exchange declined by 4 per cent to Rs2.78 trillion by the end of the week. Analysts at KASB Securities believe that with the persistent global shakedown, stemming from the Greek crisis and confusion regarding the upcoming budget, further weakness in the market cannot be ruled out. The believe that investors will be looking for news regarding the implementation of the Capital Gains Tax, the enforcements of the Value- Added Tax and changes in the power tariff.

They expect such news flows to be the major triggers in the upcoming days. The analysts also reiterated that the State Bank of Pakistan is unlikely to change the discount rate (12.5 per cent) in the monetary policy announcement on May 24 and should not have a significant impact on the market.