November proved to be one of the worst for the country’s equity market which, analysts observed, remained almost “inactive” on various accounts during the previous month. The recently concluded month saw the benchmark, KSE 100-share index, plunging by 4 per cent and average daily trading volumes crashing to the extraordinary 166-month low of 45 million shares. According to analysts the lull period seen last month at local bourse was not observed since 1998. The reasons, market observers believe, is none other than Capital Gains Tax (CGT) that still keeps investors, mostly holding black money, away from stock market due to the fear of their previous gains being enquired and taxed by concerned quarters. “If last month is any indicator, then Pakistan’s stock market was almost inactive,” said Farhan Mahmood of Topline Securities. Analyst said the lull period that was seen during last month at local equity market was unprecedented in last 13 years, since 1998. Analysts said although trading volumes were globally thin over the last few months, the decline in volumes in Pakistan remained extraordinarily abnormal. Market observers said with risk-averse investors not making any money during this calendar year as the 100 index was down four per cent, seven per cent in dollar terms, all major players preferred to remain on the sideline on the back of uncertainty in global markets, local political noise and ongoing taxation issues. “The volumes crashed in the month of November,” and making the once most liquid market of Asia suffer from extraordinary low volumes. It was made impossible for stock market to execute large orders, said analysts. Last time in January 1998, lowest daily volume was recorded at 39 million shares, amounting to $31 million, but then, analysts said, market size was also small with average market capital of Rs489 billion or $11 billion. However, last month in November, market saw average daily trading declining to 45 million shares, amounting to $27 million. “This is at 166-month low while market capitalisation is currently at Rs3.0 trillion or $35 billion in dollar terms,” said Farhan. Terming terrorism, bad governance, renewed tensions in Pakistan-US relationship and economic slowdown as key contributing factors to current low turnover at Karachi market, analysts said imposition of controversial CGT was the major stumbling block. “The imposition of Capital Gain Tax (CGT) from July 2010 after a gap of almost three decades remains the main culprit,” said Farhan. The analyst said investors had a fear that their wealth, which they had accumulated over many years when tax was exempted, might come under scrutiny and tax authorities would enquire them about the source of their funds. Another factor contributing to dwindling volumes is absence of investor-friendly derivative product, Farhan said adding that cash market alone could not develop in the absence of a vibrant futures options and margin trading.
