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August 18, 2019

Capital market loses 32 percent in PTI’s first year

Business

August 18, 2019

The capital market suffered colossal daily losses of around Rs7.6 billion per session or over Rs2,700 billion as the benchmark KSE-100 shares index lost more than 32 percent during the first year of the new government.

Prime Minister Imran Khan took oath on August 18, 2018, and dealers say the year has not been very encouraging for both domestic and foreign investors.

Pakistan Stock Exchange started its journey from 42,446 points, with market capitalisation at Rs8,703 billion. It received heavy bashing and the index trimmed 32 percent or 13,682 points. Market capitalisation saw decline of more than Rs2,797 billion, with key scrips plunging sharply.

After taking a cursory look on the companies’ movement, prices dipped significantly in the range of 8.0 percent to 72 percent. Shares of several key scrips declined more than the stock market slippages.

Hub Power fell more than 35 percent, Lucky Cement more than 39 percent, Pakistan Oilfields more than 43 percent, SNGPL 45 percent, Pakistan Petroleum Limited 47 percent, Nishat Mills 51 percent, DG Khan Cement 61 percent, PSO 62 percent, Attock Refinery 66 percent, and International Steels 72 percent.

Moreover, selling from foreign investors also unnerved the situation and from August 18, 2018 to August 19, 2019 net selling from overseas fund houses amounted to $209 million.

Ahfaz Mustafa, CEO of Ismail Iqbal Securities, said, “In my opinion, there are two different sets of reasons for it.”

He said economic numbers such as high interest rates, inflation and the increase in non-monetary hardship of doing business for example tougher account opening, need for NIC, delay in decision making with regards to GIDC, unresolved circular debt etc were the reasons for this decline.

“Second set is the political scenario both at the domestic and international front, which includes the change in the economic team, delay in routine bureaucratic work, tensions with India etc,” he added.

The capital market has suffered colossal daily losses of around Rs7.6 billion per session or over Rs2,700 billion during the past one year.

Going forward, the SBP and Ministry of Finance should resolve issues not in words but by actions to show that the economy has turned, which can be demonstrated by cutting interest rates, and starting large government projects and spending more money in development, Mustafa suggested.

Saad Bin Ahmed, head of Equities Broking at Arif Habib, attributed the decline to rising interest rates and rupee/dollar parity. Declining demand weakened the outlook for corporate earnings, which was why stock prices fell too.

Faisal Shaji, strategist at Standard Capital, said the economic bubble of 2017 burst in a big way and now it was taking considerable time for adjustment. Pakistan faced adverse twin deficits at the end of fiscal year 2018 influencing continuous decline in rupee value against dollar.

Overall decrease in public spending hurt construction material utilisation, while values of cement and steel shares also declined.

In between Indian belligerent attitude also contributed to war hysteria which diverted government attention from economic policies to defense.

Saad Hashmi, executive director at BMA Capital Management suggested to make regulatory framework more transparent; come up with sound economic management and increase investment in market by government institutions like State Life, EOBI, NIT etc.

Samiullah Tariq, director research at Arif Habib, said the government should formulate an industrial policy.

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