Weekly Review: Positive budget fails to lift the market

KSE’s benchmark 100-share index drops 2.3% despite positive budget.

KARACHI:

Investors adopted a cautious approach throughout the week despite a positive budget for the capital markets.

Concerns related to continued diplomatic tension with the US, rupee depreciation, drop in oil prices and monetary policy expectations weighed heavily on the minds of investors, says a JS Global Capital research note. The market exhibited a relatively muted response to the budget and gradually sunk into a corrective trend.

The slide was accelerated on Friday over reports that a review petition has been filed with the apex court challenging the CGT regime amendments.

Consequently, the oil heavy KSE-100 index was down 2.3% to close at the 13,559 point level.

In the budget, Finance Amendment Ordinance 2012 was made a part of the Finance Bill 2012 which also includes the rules for computation of Capital Gain Tax (CGT). As a result of this no source of income will be asked for investment made for at least 45 days till June 30, 2012 or for at least 120 days till June 30, 2014, provided statement of investment is filed along with return and wealth statement.

News of gas supply restoration to Engro’s Enven plant kept the stock in the limelight throughout the week as it outperformed the market by 4%. On the other hand, Pakistan Oilfields underperformed the market by 1.6% on the recent slide in global oil prices.

Average volumes also reflected limited interest in the market as they plunged by 32% to 95 million shares on a weekly basis. Foreigners too were downbeat as they sold shares worth $16.8 million.

As per market expectations, the State Bank of Pakistan (SBP) adopted a wait-and-see approach by keeping the discount rate unchanged at 12%. In its monetary policy statement, SBP highlighted managing external and fiscal pressures as key concerns in the immediate term.  Moreover, the SBP also emphasised the importance of reviving private investment in the economy and the need of fundamental reforms to turnaround the economy.

Outlook

Although the budget episode is in the bag, analysts are wary of follow-through developments influencing market sentiments if certain measures are challenged for a prolonged period like the CGT being challenged in the court, according to a KASB Securities research note.

Opposing forces will likely play on the currency where further delay in finding common ground in Pak-US relations could add to the pain, however, softness in international oil prices could provide some breathing space, adds the note. Oil prices dropped to $82.23 during the week at the New York Mercantile Exchange, the lowest close since June 5.

Published in The Express Tribune, June 10^th, 2012.