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KSE-100 index loses 448 points over budget noise in the parliament
Summary

Gradually but consistently the inexperienced government of PTI has presented its full year budget 2019-20 last week. This week discussion on the budget was carried on in Parliament by the opposition and government. Accordingly, different aspects were highlighted both negative and positive which led to turmoil in the market affecting the KSE-100 Index which declined 1.26% WoW.

Investors are keen to see the passing of the Budget with all the deletions and additions to it so that the country could walk on its economic journey with clear economic targets and road map. The International Monetary Fund (IMF) approval on July 3 about its bailout package will further remove the uncertainty from the market. The market support fund did not materialized during the week.

During the week the market shed 448 points, being bearish for first three days but recovered/positive on last two days as the serious discussion emerged on budget issues later during the week. It is expected by the government that the budget will ultimately be passed as the attitude of opposition seemed to be reconciliatory, which is good sign for the country. The market which during the week dropped below 35,000 level finally closed above 35,000 level to 35,125.25 on Friday. The average market volume declined to 125m and the market capitalization was lowered by 87 billion to stand at Rs.7.064 trillion.

On Monday, the market snapped the four-day bullish rally and stocks lose 404 points to close at 35,168.82. It was volatile day as market went up 52.52 points and then dipped 462.22 points. Cement attracted investors on the news of increase in cement prices/bag on the back of recent hike of federal excise duty.

The KSE-100 lost 487 points on Tuesday as on political front where the government and the opposition were entangled in the National Assembly over the passage of Finance Bill 2019-20. The Index closed 34,681.72 and the average volume too declined to 104 million.

On Wednesday, the treasury and opposition agreed to carry out a debate in National Assembly over the budget lowered political temperature and the Index closed flat with decline of 25.60 at 34,656.12.

On Thursday, the three negative sessions turned positive and KSE-100 Index recovered 339.79 to close at 34,995.91 as political budget climate improved. The individual investors were encouraged for cherry picking and were buyer for $1.46m.

On Friday, the Index crossed 34,000 level and added 129.34 points to close at 35,125.25 on the back of the news of rising international prices and Trump calling off Iran strikes at last minute.

Participants/Activity

On average shares of 327 companies were traded. Of these 127 were gainers and 181 were losers and 19 remained unchanged.

Foreigners were net seller $5.65m during the week; companies were buyer by $4.93m, Banks were buyer $3.74m; Mutual fund net seller $3.79m and individuals net buyers$7.88m.

Volume leaders during the week were: Maple Leaf Cement 61m; World Telecom 43m; Summit Bank Ltd 38m; TRG Pak Ltd 22m; Jahangir Siddiqui Co. 20m; K-Electric Ltd 17m; Pak Elektron 16m; Bank of Punjab 13m; Descon Oxychem 7m; Pak Intl Bulk 6m; Fauji Cement 5m; Engro Polymer XD 4m and Sui Northern Gas 3m.

 

Triggers
  • FDI plunges 49 percent in July-May. Total FDI fell to $1.606 billion compared to $3.16 billion in the same period last year.
  • The country’s trade deficit during the first 11 months of the current fiscal year fell by 13.62 percent to $29.207 billion compared to $33.812 billion during the same period last year.
  • Reserves held by the SBP declined by203 million to $7.6 billion during the week ended on June 19.
  • The Senate Standing Committee on Finance on Thursday rejected with majority vote for Finance Bill 2019 which envisages increase in taxes and prices maintain that it will badly burden the masses. The committee recommended that SBP bring down exchange rate at Rs.150 while policy rate should be kept at 12 percent.
  • The biggest challenge is uncertainty in the economy but the country has been coming out from difficult times as the two big challenges of current account and fiscal deficit are being addressed properly said SBP Governor Reza Baqir.
  • Fitch has kept Pakistan’s rating stable at B negative.
  • Richard Morin ex CEO of PSX in an interview with local newspaper said that a foreigner like himself at the helm of the stock exchange — one who is very familiar with best international practices – constitutes an existential threat to the “legacy brokers” who have long held a stranglehold on this market on this market.
Conclusion

Despite harsh economic conditions the government stood firm to present its annual Budget FY19-20.

Events to be watched in coming days are: 1) How and what shape the Budget FY19-20 will be passed.? 2) MSCI’s annual company classification review on 25 June 3) IMF Board’s approval of bailout due on 3 July and 4) Activation of market support fund of $20 billion.

Finally who are these “legacy brokers” according to ex CEO Richard Morin who are affecting the working of PSX. It should be looked into by the relevant authority.

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