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February 8, 2020

Stocks hurt as IMF twists govt’s arm to fill revenue shortfall


February 8, 2020

Stocks on Friday succumbed to scares of some likely harsh measures after International Monetary Fund (IMF) turned up the heat on the government to make up for the revenue shortfall and reduce subsidies on power sector, dealers said.

Pakistan Stock Exchange’s (PSX) benchmark KSE-100 shares index was down 1.43 percent or 580.77 points to close at 40,143.63 points, while KSE-30 fell 1.38 percent or 258.94 points to end at 18,454.51 points.

Analyst Ahsan Mehanti from Arif Habib Corporations said, “Stocks closed sharply lower, led by scrips across the board on investor panic over Moody’s report amid likely subdued projected growth owing to high interest rate”.

Uncertainty over outcome of Pakistan-IMF performance review talks and concerns over ongoing foreign outflows, and higher inflation played havoc at the apex bourse, Mehanti added.

Of 355 active scrips, only 47 gained, as many as 291 lost, and 17 were unchanged. Volumes hit 193.536 million shares, as compared to 127.803 million in the previous session.

Shahab Farooq, director research at Next Capital said, “The market took battering as fiscal constraints came under limelight with IMF’s mounting pressure on Pakistan for increasing revenue that eventually would be inflationary, raising concerns of delay in monetary easing”.

Salman Ahmad, head of institutional sales at Aba Ali Habib Securities, said, “The higher inflation and IMF pressure to bridge revenue shortfalls was the major behind this slide”.

“Higher inflation may lead to a hike in benchmark interest rate, which will force institutions to sell their shareholdings and park their funds in bonds, which are bound to rise under the current scenario,” he said.

Furthermore he said the upcoming week might see a sigh of relief because of final nod from the IMF, while eyes were also set on an important FATF (Financial Action Task Force) meeting to be held in Paris.

“Any extension and or some waiver from the IMF may help boost sentiment in the market,” Salman added. Financial markets, according to a leading trader, were abuzz with the new measures the government was likely to take to fill the revenue shortfall because lower revenue collection might increase the fiscal deficit to all-time high mark of Rs4,000 trillion. Moreover, the report of EIU (Economist Intelligence Unit) which said that inflation was expected to remain elevated in the coming months further dampened investors’ mood.

Arif Habib Limited in a note said, “The market saw heavy sell-off that aggravated in the second session [with benchmark index] losing 678 points during the session and closing at -580 points (unadjusted)”.

Bond yields for 3-year and 5-year were also observed to be trading at higher yields that caused concern amongst investors due to higher inflation and delay in possible rate cut, the brokerage house added.

Sapphire Fibre, up Rs46.78 close at Rs839.98/share, and Indus Dyeing, up Rs30.99 to finish at Rs629.99/share were the top gainers of the day. Mari Petroleum, down Rs34.47 to close at Rs1274.01/share, and Highnoon Laboratories, down Rs25.84 to close at Rs502.16/share turned out as the major losers.

Maple Leaf Cement recorded the highest volumes with 21.467 million shares, but lost Rs1.23 to end at Rs21.81/share. TRG Pakistan Limited registered a turnover of 6.444 million shares, which was the lowest of the day, while it lost Rs0.7 to end at Rs25.08/share.