Higher than expected inflation numbers cause stocks to fall 299 points

KARACHI: Pakistani stocks witnessed a decline of more three percent on Thursday as reports of inflation being higher than expected made investors cautious. Shares were sold amid a lack of positive triggers and on uncertainty about capital gains tax and a higher than expected rise in inflation.

The KSE-100 index lost 298.60 points, 3.09 per cent, to end at 9,379.78. Turnover was 100.51 million shares, compared with 122.11 million shares traded a day earlier.

Pakistan’s Consumer Price Index (CPI), the key indicator of inflation has risen by 13.45 per cent in May 2010 this year compared with the same period last year, according to analysts. The main reason for the increase in inflation is due to food and fuel prices going up. The government will release Inflation data soon on Thursday or soon after.

Dealers said investors were unsure about the modalities of the 10 per cent capital gains tax announced by the government in its budget for fiscal year 2010/11. This will be imposed on stocks held for six months or less. A similar tax of 7.5 percent will be imposed on stocks held between six months to a year.

“Pakistan equities remained under immense pressure led primarily because of redemption by local mutual funds that triggered institutional selling. The negative sentiment prevailing in the market after the announcement of CGT threw a new spanner  into the works today amid talk about Capital Gains Tax be liable on previous years buying,” said Elixir Securities’ analyst, Sara Shahid.

According to her the market should be exempt from the CGT until June 30, 2010, which means that it cannot be applied to any share trading done before this date. However, she said that analysts were waiting for confirmation from the Federal Board of Revenue scheduled on Saturday.

“The market closed in the negative today, as technical followers remained bearish throughout the day. Even though the market appears fundamentally attractive at these levels,  bearish technical  indicators and confusion over  modalities  of the  CGT kept investors cautious,” said JS Global Capital’s analyst, Ahmed Rauf.

“The fear of filling tax return every quarter caused panic like selling at the local bourse. No upcoming triggers along with concerns on higher CPI remained the biggest obstacle for investors,” said Topline Securities’ analyst, Furqan Punjani.

Out of the 398 active stocks traded, only 70 went up, 315 went down and 13 remained unchanged. Exchange value of the stocks traded was Rs2.97 billion. All of the stock volume leaders witnessed a decline in their prices. Stocks like PTC, LUCK, DGKC, FFBL and NML closed approximately at their lower circuit breakers.

Out of the total shares traded in the ready market, approximately 20 per cent of the volume was witnessed in LOTPTA, according to Rauf. He explained that this showed an absence of investor interest.

MCB Bank’s stock was also under pressure as there is news that its President, Atif Bajwa has resigned.

Downward revision in the wellhead prices of Kadanwari field negatively impacted OGDC’s price. Their earnings may decline by Rs0.016 per share during fourth quarter of the fiscal year 2010, according to Shahid.

Published in the Express Tribune, June 11^th, 2010.