Stocks declined over 2,000 points this week

KARACHI: Pakistan stocks closed lower during the outgoing week while the market is expected to operate amid fears of higher taxes in the upcoming FY25 budget scheduled next week.

“In the upcoming week, two major events (monetary policy and the budget) are lined up that are likely to influence market sentiment,” stated a research report of Arif Habib Ltd. “In case the SBP decides to cut the interest rate, it is anticipated that this decision will positively impact the market. Additionally, the unveiling of the FY25 budget is anticipated to have an impact on market sentiment, particularly if there are any significant tax measures implemented.”

During the week, the market experienced a substantial plunge due to fears of a significant increase in capital gains tax (CGT) or dividend income tax in the upcoming budget. The market remained negative despite positive developments on the economic front.

The KSE-100 index declined by 2,124 points or 2.80 per cent, arriving at 73,754 points. Average volumes arrived at 423 million shares (down by 5.3 per cent WoW), while the average value traded settled at $61.7 million (up by 0.4 per cent WoW).

Foreign buying was witnessed during the week, clocking in at $4.4 million compared to a net buy of $5.5 million last week. Major buying was witnessed in commercial banks ($3.4 million) and all other sectors ($0.98 million). On the local front, selling was reported by individuals ($8.9 million) followed by broker proprietary trading ($5.8 million).

Sector-wise negative contributions came from commercial banks (788 points), OMCs (497 points), fertilizer (270 points), tech & communication (125 points) and power generation & distribution (120 points). Scrip-wise negative contributors were MEBL (227 points), OGDC (199 points), HBL (133 points), SYS (125 points), and MARI (122 points).

The sectors that mainly contributed positively were automobile assemblers (59 points), pharmaceuticals (19 points), and automobile parts & accessories (6 points). Meanwhile, scrip-wise positive contributions came from MTL (67 points), LUCK (34 points), TRG (21 points), SEARL (13 points), and SHEL (10 points).

Shagufta Irshad, an analyst at JS research, said the KSE100 witnessed extreme volatility during the last week before the FY25 budget announcement, rescheduled now for 12th June 2024.

The market fell over speculation about bringing rates for CGT at par with income tax for individuals.

The volatility throughout the week led to the market trading in a relatively wide range of 4k+ points (low of 71.8k and high of 76.2k). Volumes were down 5.0 per cent during the week (in terms of shares traded) where investors preferred to book profits ahead of potential changes in CGT. The final date for budget announcement remained subject to the return of the prime minister and the finance minister from their scheduled visit to China.

Newsflow regarding increase in GST and income tax for the salaried class and capital markets took centre stage during the week.

Nabeel Haroon, an analyst at Topline Securities, said the decline the benchmark index can be attributed to investors’ concern for expected austerity and additional taxation measures by the government in upcoming budget for FY25.

On the economic front, May-24 CPI reading clocked in at 11.8 per cent, expanding real interest rates to 10.2 per cent. Food inflation turned negative for the first time in nine

years.

Trade balance for May 2024 also showed improvement with an 11 per cent MoM contraction in the trade deficit led by 19 per cent MoM increase in exports.

Additionally, the prices of MS and HSD declined by Rs4.74/litre and Rs3.89/litre. The SBP exchange reserves increased by $16 million WoW to $9.1 billion.

Furthermore, the rupee appreciated by Rs0.13 or 0.05 per cent WoW, arriving at Rs278.2 against the greenback.