Weekly Review: Stock market eases in shortened week

Political situation and uncertainty of the Capital Gains Tax regime kept the index range-bound.

KARACHI:

Activity at the country’s leading stock market finally took a breather as the benchmark KSE-100 index remained range-bound and closed down by 24 points or 0.2% during the shortened trading week ended March 22.

The country’s political situation and lack of clarity on the capital gains tax regime contributed to the cautious approach adopted by investors during the week which saw only four trading sessions due to the Pakistan Day public holiday on Friday.

Activity at the bourse took a hit as average daily volumes dropped sharply by 38% and stood at 249 million shares traded per day compared with 400 million shares per day in the previous week. Average daily value also declined 29% to Rs4.48 billion traded per day.

Movements of note were witnessed only in the opening two days, following Engro Corporation’s announcement on Monday that gas supply to its Enven plant had been cut off since last Friday. The index fell by 1.7% on Monday. However, on Tuesday, gas supply to the plant was restored and the index recovered its losses.

The country’s political situation did not do much to improve investor confidence with the resumption of the contempt of court case against the prime minister. The case has so far failed to take any definitive direction and has made investors cautious.

Added to that, ambiguity regarding the capital gain tax regime persisted as the April 1 deadline for its implementation approached. Market participants still await the SRO or a presidential ordinance, which will clarify the rules of the new regime and make its implementation effective.

The country’s macro-economic data was also far from impressive as it revealed that the current account deficit had ballooned to $2.95 billion in the first eight months of the current fiscal year, from $0.19 billion in the same period of fiscal 2011. More worrying was that the State Bank in its half year review of the economy stated that it expected the deficit to increase further in the second half of the year.

Foreigners were net buyers of equity during the week, and purchased a net of $3 million worth of equity during the four days. The cement sector was the outperformer during the week, with both Lucky Cement and DG Khan Cement climbing by 2% and 5.2% respectively, on anticipation of higher earnings.

The market capitalisation of the KSE declined 1.2% to Rs3.40 trillion by the end of the week.

What to expect?

All eyes will turn towards the order regarding the final tweaks to the CGT regime in the coming week. The new regime will go into effect in the next week, and hence news flows about the issue are imminent.

Furthermore, the political situation will continue to play its role in affecting the market with the ongoing contempt-of-court case and the possible resumption of Nato supply routes in the coming week. Reopening of these routes could provide a boost to the market as foreign aid is likely to resume once the decision is taken.

Monday, March 19

The stock market failed to start the week on a positive note, as technical corrections continued and investors abandoned positions amid lower volumes. Friday’s foreign selling and thin participation in morning trade made day traders’ life a little difficult.

Tuesday, March 20

The bulls had a field day at the stock market, staging a massive comeback rally after the last two sessions saw the benchmark index close in the red. The stock market regained some of its optimism witnessed over the past weeks, albeit amidst lower volumes than was seen in previous sessions.

Wednesday, March 21

The stock market fell as investors remained cautious amid Supreme Court hearing of the contempt of court case against Prime Minister Yousaf Raza Gilani. Investors booked profits and remained concerned about political and judicial uncertainties, according to JS Global Capital analyst Mujtaba Barakzai.

Thursday, March 22

The stock market closed range-bound on the last trading session of the week as most investors watched from the sidelines for a second straight day. Rumours regarding delay in implementation of capital gains tax reform and hearing on prime minister’s contempt of court case kept activity level low.

Published in The Express Tribune, March 25^th, 2012.