PSX ups and downs

The Pak Banker - - FRONT PAGE -

The Pak­istan Stock Ex­change has been de­clared as the best per­form­ing mar­ket in the re­gion in 2018 year-to-date. Up to the first week of May, the re­turn for CY2018 dished out by the lo­cal bourse was 10 per cent. The re­turns dis­bursed by other mar­kets paled in com­par­i­son as most mar­kets grew be­low three per cent: In­dia and Malaysia 2.5pc and Sri Lanka 2.2pc. But this is one side of the pic­ture. Over the last year since the KSE-100 In­dex hit an all-time high of 53,123 points on May 25, 2017, the In­dex has shed 9,267 points to close trad­ing last week at 43,856 points. The In­dex man­aged to find a foothold and climb a bit to snap a seven day los­ing streak, but that still leaves the KSE-100 In­dex with a loss of 17pc over the course of a year, based on the av­er­age loss cal­cu­lated on the 100 shares that com­prise the bench­mark KSE-100 In­dex.

The price ero­sion in nu­mer­ous stocks over the year shows that in­vestors have suf­fered greatly. The av­er­age loss on most stocks in the past year stands at an alarm­ing 35pc - twice the loss of 17pc rep­re­sented in KSE-100 stocks. Most low-priced shares have been favourites of small savers and the vol­ume lead­ers on most trad­ing days. With al­most a half of their sav­ings gone, it is the small in­vestor who has yet again taken the brunt of the blow. But even as the PSX was strid­ing for­ward in the first four months of the cur­rent cal­en­dar year, the win­ning streak was bro­ken by the an­nounce­ment of the fed­eral bud­get on April 27.

In the new bud­get, Fi­nance Min­is­ter Mif­tah Is­mail an­nounced a clutch of in­cen­tives and tax ex­emp­tions which the PSX had been clam­our­ing for over the past four years. The pack­age for the cap­i­tal mar­ket was loaded with tax in­cen­tives and ex­emp­tions. The bud­get 201819 de­creed a re­duc­tion in cor­po­rate tax by one per cent for the next five years to scale it down to 25pc by the end of fi­nan­cial year 2023, phas­ing out the cur­rently levied su­per tax at three per cent for com­pa­nies and four per cent for banks by one per cent ev­ery year, and restora­tion of the ma­jor ex­emp­tion of tax at five per cent on bonus shares. At the con­clu­sion of the bud­get speech, mar­ket par­tic­i­pants show­ered praise on Mr Is­mail for of­fer­ing what they termed was a "mar­ket friendly" bud­get. But the mar­ket gave a cool re­sponse.

Sig­nif­i­cantly, in the seven trad­ing ses­sions since the an­nounce­ment of the bud­get, the mar­ket went on a los­ing streak with the KSE-100 In­dex poorer by 1,748 points, wip­ing out nearly four per cent of the year's gains. Mar­ket pun­dits have now started to find fault with the bud­get. Ig­nor­ing the mas­sive in­cen­tives, the non-restora­tion of slab­wise regime of cap­i­tal gains tax (CGT) and the sta­tus quo on tax on cash div­i­dends has been blamed for the mar­ket fall.

At a deeper level, in­vestors' wor­ries have more to do with cor­re­spond­ing uncer­tain­ties: the bal­ance of pay­ments sit­u­a­tion and the weak­ened growth out­look for Pak­istan by the In­ter­na­tional Mon­e­tary Fund which re­vised the GDP growth rate down from 5.6pc to 4.7pc for FY19. It is rel­e­vant to add here that the boun­ties an­nounced in the bud­get were also eclipsed by in­vestors' fear over the uncer­tain po­lit­i­cal at­mos­phere and the ap­proach of the gen­eral elec­tions. Al­though most bro­ker­age houses down­play the po­lit­i­cally charged at­mos­phere in the coun­try, the in­di­vid­ual and institutional in­vestors are tak­ing cover in risk-free in­vest­ments.

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