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December 2, 2018

PSX remained topsy turvy


December 2, 2018

KARACHI: The capital market during the first 100 days of Prime Minister Imran Khan’s rule remained in hot waters and lost nearly four percent or 1,578 points, mainly because of government disability to improve key economic indicators, depreciation of rupee, and heavy outflow from foreign fund houses.

The benchmark KSE-100 index on Friday, August 17 closed on 42,446 points where the market capitalisation or share values amounted to Rs8,704 million. The selling pressure from the foreign fund houses, high net worth individuals and other financial institutions dragged the index to close at 40,868 points on Friday, November 23, with market capitalisation totalling at Rs8,096 million.

The index during the process suffered a loss of 1,578 points or six percent with market capitalisation facing a loss of Rs608 billion. However, during the middle of these 100 days, situation turned worst and index at one stage on October 16, 2018 closed at 36,664 points, which was 29 months low, the index was last seen at 36,940 points levels in June 2017.

“During the 100 days of PTI government, Pakistan Equity Market ended with little change. However the period was marked with unprecedented volatility and uncertainty,” said Hamad Aslam, director research at Elixir Securities.

As the initial election euphoria subsided, market participants eagerly looked towards the newly elected government to lay out the economic plan particularly needed to tame down the twin deficits.

“Rest assured, investors never expected the government to have a magic wand that could transpire policies into results – but wanted a policy direction,” he said.

The actual panic started when the government took months to make difficult but much needed decisions such as those on energy tariffs, circular debt curtailment, and revenue mobilisation. Disappointment also emanated from the announcement of Revised Finance Bill which did not lay down any concrete measures to increase tax net and mobilise revenues from services, agriculture and real estate sectors.

Eventually the market recovered, as the government was indeed successful in getting a $6 billion economic package from Saudi Arabia. But the challenges have not subsided.

An economic bailout package was inevitable which would of course come with strict conditions. Investors now wait for January to get a full insight into how painful these conditions would be.

Zeeshan Afzal, head of research at Insight Securities said the overall market sentiment/investor confidence has improved in last 100 days and there has been reasonable clarity that the current government would be able to manage the economic crisis.

“However, uncertainty over the government plans (be it China or IMF) and domestic reforms policy has resulted in limited interests by a wide range of investors, who are waiting for more clarity before taking any investment bets.”

Further, crackdown against corruption/money laundering, and its effects on politicians, has raised concerns over the political stability, he explained.

Samiullah Tariq, director research at Arif Habib Limited said high current account deficit, continuous foreign selling and declining foreign exchange reserves worry the investors. The index during the 100 days lost almost four percent, however, the market participants needs some positive developments to uplift the mood.

A clear direction of the market would be gauged following the announcement of IMF package which would help guide the economy. How much of the funding gap would be met through financial assistance has to be seen as well.

Faisal Shaji, strategist at Standard Capital said the government's main thrust was an asset recovery drive, which was a good omen since Pakistan badly needed foreign 'inflows' where ill-gotten wealth could be transferred back through concerted efforts. This should be expedited through strong legislation.

“Overall Prime Minister Imran Khan’s government needs further economic direction which is still lacking. Investors still shy away since institutional framework in Pakistan is not in line with Khan's vision and nothing on war footing is going on to bring investment from overseas Pakistanis in areas such as industries,” he added.

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