PSX slumps over pre-budget, policy rate worries

KARACHI:

Pakistan Stock Exchange (PSX) endured a turbulent week where it plunged over 2,000 points as investors were worried about the potential increase in capital gains tax (CGT) and due to uncertainty over the State Bank of Pakistan’s (SBP) monetary policy announcement.

Investors were wary ahead of the budget presentation next week where taxes on capital gains in the stock market and on the salaried class may be jacked up.

Market players withheld stock purchases ahead of the monetary policy announcement on June 10, where analysts and experts were divided on whether the policy rate would be slashed or not.

The market closed in the red despite some encouraging developments such as the increase in the SBP’s foreign exchange reserves by $16 million at $9.11 billion.

Also, the Consumer Price Index (CPI) for May 2024 came in at 11.8% year-on-year (YoY), the lowest pace since November 2021, compared to 17.3% in April 2024. Encouragingly, workers’ remittances recorded a month-on-month increase of 5.3% to the high of $3.2 billion for May.

Day-by-day movement of the market showed that at the beginning of the week on Monday, the stock exchange came under significant selling pressure, triggered by pre-budget uncertainty and the terms of a new International Monetary Fund (IMF) loan programme such as tax reforms, tariff hikes and rupee devaluation.

The bourse slumped on Tuesday when the KSE-100 index lost over 900 points amid uncertainty ahead of the budget presentation.

There was no end to the bearish trend on Wednesday with the index shedding nearly 450 points over uncertainty surrounding the SBP’s policy rate announcement.

The following day, the ongoing economic uncertainty caused anxiety, preventing market players from building positions and pushing the KSE-100 down by over 350 points.

The market concluded Friday’s trading with a modest loss of over 100 points as investors exercised caution before the monetary policy announcement.

The benchmark KSE-100 index fell 2,124 points, or 2.80% week-on-week (WoW), and settled at 73,754.

JS Research analyst Shagufta Irshad, in her report, said that the KSE-100 witnessed extreme volatility during the outgoing week before budget announcement, rescheduled for June 12.

“The market lost 2.8% or 2k points during the week over speculation about bringing rates of CGT on a par with income tax for individuals,” she said. “The volatility throughout the week led the market to trade in a relatively wide range of 4k+ points.”

Investors preferred to book profits ahead of the potential changes in CGT. News reports regarding the increase in general sales tax (GST) and income tax for the salaried class and capital markets took centre stage.

May 2024 Consumer Price Index (CPI) came in at 11.8% while food inflation turned negative for the first time in nine years, she said.

Trade deficit for May showed an 11% month-on-month (MoM) contraction, led by a 19% MoM increase in exports. Moreover, the SBP’s foreign exchange reserves remained stable at $9.1 billion, the JS analyst added.

Arif Habib Limited (AHL), in its report, said that during the outgoing week, the market experienced a substantial plunge due to fears of a potential significant increase in CGT or dividend income tax in the upcoming federal budget for FY25.

“The market remained negative despite positive developments on the economic front. The CPI for May 2024 clocked in at 11.8% YoY, the lowest since November 2021, compared to 17.3% in April 2024,” it said.

Tax collection for May increased 33% YoY to Rs760 billion against the target of Rs745 billion. Additionally, Pakistani rupee appreciated Rs0.13, or 0.05% WoW, closing at Rs278.2 against the greenback.

Sectors that negatively impacted the index were commercial banks (788 points), oil marketing companies (497 points), fertiliser (270 points), technology and communication (125 points) and power generation and distribution (120 points).

During the week, foreign investors bought shares worth $4.4 million compared to net buying of $5.5 million last week, AHL added.

Published in The Express Tribune, June 9^th, 2024.

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