Market wanders aimlessly as uncertainty dominates investor sentiments
News regarding the implementation of the Capital Gains Tax (CGT) dominated proceedings at the Karachi Stock Exchange.
News regarding the implementation of the Capital Gains Tax (CGT) dominated proceedings at the Karachi Stock Exchange as the benchmark KSE-100 index remained volatile throughout the week, closing higher by 1.8 per cent.
The improved status of the market might be an indication that investors are coming to terms with the implementation of the CGT, which will be enforced on the country’s bourses from July 1. Though it remains to be seen what direction the market will take in the short-term as it has been range-bound for the last couple of weeks.
The week started on a negative note, with the KSE-100 index dipping sharply by 2.5 per cent on Monday, after the failure of the meeting between the KSE management and the Federal Board of Revenue regarding the modalities of the CGT.
It came to light during that meeting that the Senate Committee on Finance had suggested that the CGT should be applied on all purchases of stocks on or before July 1, rather than the previously agreed formula of stock purchases after July 1.
The news came as a rude shock to many investors and their concerns were compounded when the Senate Committee and the FBR both refused to accept the KSE’s demands of annual tax filings, rather than quarterly and an exemption from the tax on foreign investment.
After Monday’s volatile session came the news that the KSE management will meet the finance minister and government officials on Wednesday to address the issue and figure out a solution.
This brought a relative calm in the market, and the index climbed by 0.23 per cent on Tuesday before heavy foreign buying in the Oil and Gas Development Company (OGDC) saw the index rise sharply in the following two days.
Investor concerns were also eased on Thursday, in a briefing by the KSE management that although the government had still not agreed to their proposals regarding the CGT implementation, a compromise was likely and that small investors who form 52 per cent of the traders would likely be allowed to file annual tax returns rather than quarterly. The index rose 2.5 per cent on Thursday on relatively healthy volumes of 138 million shares.
The market remained positive during most of the session on Friday, but late selling by local mutual funds and some foreign selling for profit-taking led to the market closing in the red zone for that day. In all, the KSE-100 index rose 1.8 per cent (175 points) during the week to close at 9,645 points.
Average trading volumes were down by 7.2 per cent during the week and stood at 109 million shares per day as compared to 117 million shares in the previous week. Although second-tier stocks remained volume leaders, there was heavy institutional buying in blue-chip and defensive stocks with OGDC being in the limelight, while PSO also made gains. Average traded value was up by 17.6 per cent and stood at Rs3.76 billion per day.
Total market capitalisation increased by 1.5 per cent to Rs2.71 trillion by the end of the week. Despite foreign selling on Friday, foreigners remained net buyers of $4.8 million during the week, almost three times over the previous week. Banks and individuals were the net sellers during the week of $1.6 million.
Analysts at KASB Securities believe that the market seems to remain relatively directionless in the near-term and volatility is likely to continue as the KSE awaits any further changes in implementation of CGT.
They also stated that as the market has climbed 35 per cent in the current fiscal year, it is likely that profit taking will be witnessed before the start of 2010-11. News regarding the introduction of the margin financing product is likely to dominate proceedings in the upcoming week as a meeting between the stakeholders is scheduled for Tuesday, regarding its implementation.
Published in The Express Tribune, June 20th, 2010.
The improved status of the market might be an indication that investors are coming to terms with the implementation of the CGT, which will be enforced on the country’s bourses from July 1. Though it remains to be seen what direction the market will take in the short-term as it has been range-bound for the last couple of weeks.
The week started on a negative note, with the KSE-100 index dipping sharply by 2.5 per cent on Monday, after the failure of the meeting between the KSE management and the Federal Board of Revenue regarding the modalities of the CGT.
It came to light during that meeting that the Senate Committee on Finance had suggested that the CGT should be applied on all purchases of stocks on or before July 1, rather than the previously agreed formula of stock purchases after July 1.
The news came as a rude shock to many investors and their concerns were compounded when the Senate Committee and the FBR both refused to accept the KSE’s demands of annual tax filings, rather than quarterly and an exemption from the tax on foreign investment.
After Monday’s volatile session came the news that the KSE management will meet the finance minister and government officials on Wednesday to address the issue and figure out a solution.
This brought a relative calm in the market, and the index climbed by 0.23 per cent on Tuesday before heavy foreign buying in the Oil and Gas Development Company (OGDC) saw the index rise sharply in the following two days.
Investor concerns were also eased on Thursday, in a briefing by the KSE management that although the government had still not agreed to their proposals regarding the CGT implementation, a compromise was likely and that small investors who form 52 per cent of the traders would likely be allowed to file annual tax returns rather than quarterly. The index rose 2.5 per cent on Thursday on relatively healthy volumes of 138 million shares.
The market remained positive during most of the session on Friday, but late selling by local mutual funds and some foreign selling for profit-taking led to the market closing in the red zone for that day. In all, the KSE-100 index rose 1.8 per cent (175 points) during the week to close at 9,645 points.
Average trading volumes were down by 7.2 per cent during the week and stood at 109 million shares per day as compared to 117 million shares in the previous week. Although second-tier stocks remained volume leaders, there was heavy institutional buying in blue-chip and defensive stocks with OGDC being in the limelight, while PSO also made gains. Average traded value was up by 17.6 per cent and stood at Rs3.76 billion per day.
Total market capitalisation increased by 1.5 per cent to Rs2.71 trillion by the end of the week. Despite foreign selling on Friday, foreigners remained net buyers of $4.8 million during the week, almost three times over the previous week. Banks and individuals were the net sellers during the week of $1.6 million.
Analysts at KASB Securities believe that the market seems to remain relatively directionless in the near-term and volatility is likely to continue as the KSE awaits any further changes in implementation of CGT.
They also stated that as the market has climbed 35 per cent in the current fiscal year, it is likely that profit taking will be witnessed before the start of 2010-11. News regarding the introduction of the margin financing product is likely to dominate proceedings in the upcoming week as a meeting between the stakeholders is scheduled for Tuesday, regarding its implementation.
Published in The Express Tribune, June 20th, 2010.