Pakistan Stock Exchange (PSX) saw some correction and concluded the outgoing week with a marginal decline of over 100 points as the upcoming federal budget undermined investor interest where sales tax rate may be increased and income tax slabs for the salaried class could be slashed to collect more taxes.
Investors were wary of building positions and opted for profit-booking but later in the week they resorted to heavy stock buying. The week was marked by the abrupt announcement of a public holiday to commemorate Youm-e-Takbeer, the day Pakistan conducted nuclear tests.
The finance ministry’s projection of a sharp decline in inflation and a stable Pakistani rupee provided support to the market, which prevented a sharp fall in the KSE-100 index.
Among other positive cues were the decline in treasury bill yields, potentially signalling a reduction in the cost of borrowing by the central bank, and stable foreign currency reserves above $9 billion.
Simultaneously, negotiations with the International Monetary Fund (IMF) with a particular focus on economic reforms and debt sustainability captured investor attention.
Day-by-day movement of the market showed that stocks kicked off the week on a bearish note as it dropped over 450 points owing primarily to pre-budget uncertainty among investors.
Bears tightened their grip in the post-holiday session on Wednesday, where the KSE-100 index lost around 680 points, driven by political uncertainty and the rollover week.
Next day, the index ended almost flat with slim gains amid volatile trading and mixed investor sentiment.
On Friday, the market made a handsome recovery after enduring losses earlier in the week as the index surged 1,000 points over expectations of a marked fall in inflation as well as government’s development spending and growth projections for next year.
The benchmark KSE-100 index fell 105 points, or 0.14% week-on-week (WoW), and settled at 75,878.48 points.
JS Global analyst Shagufta Irshad, in her report, wrote that the KSE-100 underwent a 0.1% WoW correction after recording positive weekly close in the past three weeks.
Additionally, market activity decreased, with a 20% WoW decline in the average daily turnover of shares. Investors opted to book profits ahead of the announcement of FY25 budget, which had been rescheduled for June 10, 2024, she said.
Throughout the week, increased attention was being paid to the expected tax measures in the upcoming budget.
Proposals were being considered to raise general sales tax (GST) by 1% to 19%, reduce income tax slabs for the salaried class, and increase customs duty and GST on imports of non-essential products, pesticides, pharmaceutical products, food items and fuel products, the analyst said.
The Securities and Exchange Commission of Pakistan (SECP) proposed bringing capital gains tax (CGT) on immovable properties on a par with CGT in equity markets. The Ministry of Finance shared its inflation expectations of 13.5-14.5% and 12.5-13.5% for May and June respectively, which “is in line with our expectations”.
Media reports suggested that petroleum prices would go down by Rs4-4.5 per litre for the June 1-15 fortnight while gas prices were expected to remain unchanged for 2HCY24
Meanwhile, the State Bank’s foreign exchange reserves remained stable at $9 billion, the JS analyst added.
Arif Habib Limited (AHL), in its commentary, said that the market witnessed mixed sentiment during the outgoing week amid anticipation ahead of the federal budget and announcement of monetary policy.
The government raised Rs501 billion through a T-bills’ auction where cut-off yields depicted a decline of 29 to 60 basis points (bps). In addition, secondary market yields across all tenors fell in the range of 1 to 44 bps.
Furthermore, Pakistani rupee depreciated Rs0.12, or 0.04% WoW, reaching Rs278.3 against the greenback, AHL said.
Sector-wise, negative contributors were exploration and production (286 points), fertiliser (121 points), oil marketing companies (89 points), refinery (28 points) and textile composite (27 points).
During the week, foreign investors bought shares worth $5.5 million compared to net selling of $12.1 million last week, AHL added.
Published in The Express Tribune, June 2nd, 2024.
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