Market watch: Stocks nosedive 938 points ahead of budget announcement

Benchmark index decreases 2.64% to settle at 34,567.55

KARACHI: Uncertainty gripped the stock market on Monday as the benchmark KSE-100 index nosedived over 1,000 points in intra-day trading ahead of release of the Economic Survey 2018-19 and announcement of federal budget.

It will be the first budget of the current Pakistan Tehreek-e-Insaf (PTI) government, which is expected to levy new taxes and increase existing ones.

On the political front, the Islamabad High Court rejected the bail plea of former president Asif Ali Zardari, which further fuelled the market's downturn. On the other hand, the rupee weakened further in inter-bank and open markets, pushing the stock market down.

According to Ahsan Mehanti of Arif Habib Limited, the market saw panic selling because of pre-budget uncertainty and lack of institutional support on delay in utilising the market support fund approved by the Economic Coordination Committee (ECC) recently.

A likely withdrawal of zero-rated facility on exports, reports of imposition of higher taxes on the corporate sector in the federal budget, dismal data on CPI inflation which surged 9.1% in May 2019 and instability in the rupee-dollar parity played the role of catalysts in bearish close of the market, he said.

The index dipped as soon as trading began and continued to lose ground due to multiple negative triggers throughout the day. Whatever gains were made, they were wiped out later.

Uncertainty over the Pakistan Economic Survey 2018-19, announced later in the day, also contributed to the market's decline.

At the end of trading, the benchmark KSE 100-share Index recorded a decrease of 937.74 points, or 2.64%, to settle at 34,567.55.

Talking to The Express Tribune, Alpha Beta Core CEO Khurram Schehzad said investors were afraid due to anticipation of a tax-heavy budget. On the other hand, he pointed out, the Financial Action Task Force (FATF) had provided room to Pakistan till September for meeting its nine-point agenda and the NIT fund had also been approved.

"Despite the positive news, the market maintained a negative trend," he said. "A hike in taxes and withdrawal of subsidies are expected in the upcoming budget and the government has set an unusually high target of taxes amounting to Rs5.55 trillion."

Schehzad was of the view that the additional target of Rs1,400 billion was a big challenge and following a shortfall in the current year, the investors felt that the government would not be able to meet next year's target.

"The corporate tax rate may be increased. If not, it may not be reduced either," he added. "Certain positive measures in the previous mini-budget, announced by former finance minister Asad Umar, including the abolition of super tax, may also be reversed."

Other than that, Prime Minister Imran Khan's statement urging people to opt for the amnesty scheme also sparked fears among investors.

Moreover, the rupee depreciated further in the range of Rs2-3 against the dollar, which was why investors were concerned about the local currency's stability. However, a lot would be clear once the budget was announced.

He regretted that in the last two trading sessions, the equity market shed 1,407 points or 3.91% primarily because of budget uncertainty.

"This happens every time before budget announcement when a tax-heavy budget is expected," Schehzad remarked. "A few days before the announcement, the index falls but clarity emerges after the announcement and the market gradually recovers."

Overall, trading volumes decreased to 91.7 million shares compared with previous Monday's tally of 124.6 million. The value of shares traded during the day was Rs3.5 billion.

Shares of 314 companies were traded. At the end of the day, 49 stocks closed higher, 246 declined and 19 remained unchanged.

K-Electric was the volume leader with 18.5 million shares, gaining Rs0.18 to close at Rs4.27. It was followed by The Bank of Punjab XD with 7.3 million shares, losing Rs0.58 to close at Rs10.06 and Unity Foods with 4.3 million shares, losing Rs0.89 to close at Rs9.83.

Foreign institutional investors were net sellers of Rs662.4 million worth of shares during the trading session, according to data compiled by the National Clearing Company of Pakistan.