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Post-Budget sessions bring bearish spell back in PSX
Summary

The 6th budget presented by the PML-N government was considered as a populist budget trying to please all the sectors of the society: cut in income tax for salaried individuals and dividend income; increase in pensions; allocations towards education, health, agriculture, armed forces; including amnesty scheme. It was expected that fell good factor may boost the PSX. However the PSX overall reaction to post Budget was negative as market shed 1,005 points and came down to 44,000 level and closed at 44,536.91 on Friday. It seems the investors gave more weigh up to political factors and played safe in the market.

It was a four days week with May 1 as a holiday. The average volume too declined to 140m and market capitalization was brought down to Rs9.180 trillion. The political announcement of court cases like Kh. Asif disqualifications, continuous NAB hearing of Mr. Nawaz Sharif case and prediction of its results and disowning the Budget by the opposition parties kept the uncertainty for investors regarding the finer points of the budget. The PSX remained in bearish mode during the week although at time there were some sparks when the market gained few points.

Market initially started positive on Monday on FY19 budget announcement on last Friday. PSX gained an intra-day high of +299 but soon budget euphoria died down and the market witnessed a low of -118 points. PSX ultimately settled by losing 53.92 points to close at 45,488.86. The volume started to slip to 249m from 255m last Friday.

On Wednesday, the decline continued in PSX as investors noted some of their proposal like removal/reduction of GIDC, slab wise CGT regime and elimination of tax on dividend income being ignored in the budget. This led to some negative feelings about budget and the market declined by 292 points to close at 45,19.37. The volume too declined to 131 million.

On Thursday, the inflation figure for April affected the sentiments of investors as it showed a rise to 3.67 percent from 3.10 last. The investors fear the rise in Bank policy rate in the upcoming Monetary Policy. Also the projection of Pakistan’s growth rate at 4.7 percent in FY 19 by IMF from 5.6 percent in 2018 has dampened the market. Earlier statement of newly appointed Finance Minister Muftah Ismail to go for IMF loan has created doubt over currency outlook. The market lost 449.72 points to close at 44,746.64.

The stocks continued to decline on Friday as investors lost confidence in the budget and political uncertainty prevailing in the market. The KSE-100 Index lost 209.73 points to close at 44,536.91.

 

Participants/Activity

On average shares of 369 companies were traded. Of these 128 were gainers and 223 were losers and 18 remained unchanged.

Foreigners were net buyer of $0.57m during the week; companies were seller by $6.40m, Banks were seller $8.12m; Mutual fund net seller $1.93m and individuals net seller $2.27m.

Volume leaders during the week were: Bank of Punjab 134m; Lotte Chemical XD 57m; Unity Foods Ltd 38m; Shabir Tiles 16m; Bank AlFalah 11m; Nimir Resins 8m; Byco Petroleum 7m; Fauji Foods Ltd 6m; Fauji Cement Ltd 6m and TRG Pak Ltd 4m.

Triggers
  • SBP reserves up $593m during the week ended April 27. In post-budget conference Finance Minister Miftah Ismail said the country has received $1 billion inflow.
  • Senate committee shoots down sales tax hike to 20 percent for unregistered persons.
  • IMF sees mounting risks, sharp drop in growth for next year.
  • Inflation picked up to 3.7 percent in April from 3.2 percent in March.
Conclusions

The RSI & MACD has moved down supporting a negative view. For the clarity of political uncertainty one should watch for two dates. The date when the present government leaves, the office and caretaker government takes over and election date is announced. The date when the court announces decision of former prime minister Nawaz Sharif cases in the NAB.

 

Raees Uddin Khan,
Research & Development Institute of Securities Management Research & Training (Pvt) Ltd, Karachi.
Dated: May 5, 2018

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