Pakistan Stock Exchange posts 2.8%WoW decline

Pakistan Stock Exchange remained lackluster throughout the week ended on June 07, 2024, closing at 73,754 points with benchmark index losing 2,124 points or 2.8%WoW.

The downward pressure was primarily driven by concerns over the potential elimination of the final tax status for CGT and dividends, which would align their tax rates with the normal income tax rate.

Additionally, Moody’s statement suggesting a status quo in the upcoming Monetary Policy Committee (MPC) meeting also exerted some pressure on the market. These negatives overshadowed positive developments during the week.

On the macro front, inflation in May'24 eased to a 30-month low of 11.8%YoY, resulting in positive real interest rates exceeding 1,000bps. This fueled market participants' expectations for rate cuts in the June 10 MPC meeting.

Furthermore, the announcement of monetary easing from developed economies, including the European Central Bank and the Bank of Canada, amplified this sentiment.

May trade deficit shrank by 15%MoM to US$2.1 billion, while record-high remittance inflows of US$3.2 billion, hinting at another potential current account surplus, raising expectations that FY24’s current account could close in surplus.

As the FY25 budget approaches, new tax measures have surfaced with the IMF demanding an additional PKR2.0 trillion in revenue, while the local officials considering additional taxation of PKR1.4 trillion.

With an overall volatility in market, participation also decreased by 5.3%WoW, with the average daily traded volume falling to 423 million shares as compared to 447 million shares a week ago.

On the currency front, PKR appreciated by 0.05%WoW to close at 278.2/US$.

Other major news flows during the week included: 1) FBR tax collection in May exceeded target by RPK15.21 billion, 2) Pakistan has to repay US$10 billion by July, 3) May Petroleum products sales was up 7% to 1.39 million Tons YoY, and 4) Cement sales was Up by almost 8% during May.

Top performing sectors included: Paper & Board, Jute, and Textile spinning, while the laagered included: Inv. Banks/ securities cos., E&Ps and Refinery

Major net selling was recorded by Individuals with a net sell of US$8.9 million. Insurance and Banks/ DFI absorbed most of the selling with a net buy of US$7.0 million and US$6.8 million.

Top performing scrips of the week were: YOUW, SHEL, MTL, SEARL and TRG, while the laggards included: CEPB, FFBL, PSX, PIBTL and OGDC.

Looking ahead, the upcoming MPC meeting on June 10th will be in the spotlight, with any rate cut expected to shift the market’s focus towards cyclical sectors.

Additionally, the Federal Budget 2025 will significantly influence investor sentiment. Given the prevailing uncertainties, the market is likely to remain volatile in the short run, with clarity expected to emerge after the budget announcement. Until then, AKD Securities advises investors to adopt a wait-and-see approach, although any corrections should be seen as opportunities for value buys.

 

Pakistan must get ready to face IMF

Most of the politicians in Pakistan, being part of the ruling junta or sitting in the opposition, talk ‘bad’ about International Monetary Fund (IMF), mainly to attain political mileage. 

While every political party in opposition blames IMF of economic malice of Pakistan, but no sooner did it comes in power approaches the lender of last resort and often agrees on its (IMF) condition in the name of saving the country from eminent default.

Pakistan and IMF have a long history of love and hate relationship. Since independence Pakistan has entered into 22 bailout programs and also enjoys the distinction of the country that has entered into the largest number of programs, among the community of nations. This establishes a point, “IMF will never allow Pakistan to commit default. This has become all the more necessary after Pakistan has attained the status of ‘an atomic power’.

I am inclined to accept one of the conspiracy theories of my mentor, Masoom Shah Sindhi. He says, “IMF will never allow Pakistan to commit default, but it will also never allow Pakistan to stand on its feet firmly.” He also says, “Historically Pakistan has remained ‘Frontline Alley’ of United States during ‘Cold War Era’ as well as ‘Proxy Wars in Afghanistan’. On top of all the super power will not allow Pakistan to become a darling of Russia or China. The best tool to keep Pakistan under the ‘US Hegemony’ is to make Pakistan follow the ‘IMF Dictate’.”

I have to accept his point of view and I am also sure that you will also join me once you read my narrative. “Pakistan has lived under 22 IMF programs and the lender of last resort still talks about introducing more structural adjustment programs. This proves two points: 1) the programs introduced in the past were faulty or 2) these programs were never aimed at making Pakistan a self-sustained entity.”

Many Pakistanis may be ready to accept the ‘vested’ interest of IMF, but do have a right to raise finger at the integrity of policy planners. Ironically, the policy planners have been following IMF dictate blindly and failing in coming up with ‘home grown’ plan. The beauty is that the politicians continue ‘mudslinging’ despite having remained part of different governments under different political parties.

Enough is enough, the time has come that people of Pakistan open their eyes and ears open and watch every move of the incumbent government, headed by Shehbaz Sharif.

Time has also come that the people of Pakistan ‘dump’ the political parties and politicians who have proven to be ‘vultures’ only. They have done little for the country, except serving ‘their vested interests’.