It may or may not be true that the sentiments are the reasons for the performance of Pakistan Stock Exchange. Well, markets need to be driven by fundamentals not by sentiments. A poor or hasty decision about a certain sector should not be the reason for the upside or downside in the short terms.
Prior to the Federal Budget 2018-19, it was being discussed that the incentives and tax relaxations need to be offered in the budget including phasing out corporate, super income taxes etc. Incentives were offered and the confidence level seemed to be at high initially however the market gave a disappointing response to the budget 2018-19 unlike the expected robust rally-like scenario.
Investors do remembers the all-time high of KSE 100 Index, which touched 52,876 points in May 2017 and also the record low performance when the Index went down to 538 points in June 1990. Both the high and low levels were due to certain decisions and the events, which impacted the sentiments/confidence of the local and foreign investors.
Those who either invest, watch, observe or write about the performance of Pakistan Stock Exchange know what the sentiment-driven decisions are. Some of the recent decisions/developments/reasons which have either left the market in lurch or brought upswing are: Moody’s rating, talks with IMF, key policy rate by SBP, upward trajectory of oil prices, spike in trade deficit, ever-growing current account deficit, flow of foreign remittances, depleting foreign exchange reserves, disputes on budget proposals, tirade of the political leaders against each other and the comments on the economic condition of the country, political developments, attractive valuations of the scrips, Financial Action Task Force (FATF) decision, the tone down in the noise on political front, the deterioration in ties with the US, response to the amnesty scheme, CPEC-related projects, energy issues, increase or decrease in imports and exports, currency depreciation, result season of corporate sector, court decisions, imposition or withdrawal of taxes, the six-member caretaker federal cabinet offering comfort to the investors of a smooth transition of power, inclusion of the former governor of State Bank Dr Shamshad Akhtar as interim Finance Minister, which reportedly encouraged investors, macro stabilization, the month of Ramazan, the 2018 semi-annual review by MSCI and last but not least the all-time prevalent rumors. All these issues do leave an impact on the performance and confidence of the investors. While considering the fundamentals, it must be noticed that the impact in terms of performance and investor confidence should come due to the fundamental aspects such as distribution of dividends, bonus and right shares, expansion plans of the companies, economic performance, political headwinds, inclusion in grey/black list by the Financial Action Task Force, foreign selling etc.
The debate whether market is driven by institutional buying-selling and high net-worth individuals may prove true in the business environment of Pakistan. Recently the market lost whopping 2,707 points within four days sending negative signals to the investors. In May 2018, the Index plunged 2,642 points (5.8 percent) which unnerved everyone including day traders, foreign investors, institutional buyers etc.
It is being still discussed that the average return during the past interim governments remained up to 17 percent and this may be the case this time as well. Well, it is still to be seen and let’s see whether the confidence level of the investors is still intact after the decision on the inclusion of Pakistan in grey list in the terror financing watchdog i.e. FATF.
One positive development regarding the boost in the confidence level of the investors may be the news that the amnesty scheme has brought somewhat good results as according to the sources around 5,000 people have filed returns declaring their foreign assets and deposited nearly Rs80 billion in taxes so far and many are willing to go for the same. The question whether the confidence of the capital market investors is based on short terms measures or long terms measures is yet to be ascertained in the given situation of Pakistan.