The risk-averse investors at the country’s largest bourse, Karachi Stocks Exchange (KSE), are playing with extreme caution as what stocks brokers believe the newly-elected “pro-business” PML-N led government is poised to unveil the new fiscal plan for 2013-2014.
Monday saw the benchmark KSE 100-share index shedding 208.22 points to close at 22,150.74 points compared to 22,358.96 points of Friday, last trading day of the week. Negatives dominated the bourse with the volume, value and market capital of the traded shares witnessing a downward trend.
On first trading session of the week, the turnover contracted to 277 million shares from Friday’s 340 million. The scrips traded lost value that, accumulatively, dropped to Rs 8.039 billion from Rs 10.6 billion of the previous session.
The total capital of the companies listed at the KSE also declined, though slightly, to Rs 5.339 trillion from Rs 5.390 trillion.
Of the 387 total scrips traded, only 116 could end up in gain while 249 lost and 22 saw the status quo.
“(The) stocks closed bearish amid institutional profit taking in stocks across the board,” said Ashen Mehanti, senior equity analyst and a director at Arif Habib Securities.
The analyst cited limited foreign interest, volatile global commodities and economic uncertainty as major attributable factors for Monday’s dip.
This coupled with the investors’ “security concerns” in this financial capital, Mehanti said.
“The trade remained mainly in second and third tier stocks as (the) investor remained cautious ahead of (the) federal budget announcements due next week,” the analyst said.
With Bankislami Pakistan appearing as volume leader with 24.7 million of its shares traded, PIAC (A), Bank of Punjab, TRG Pakistan, Fauji Cement, Bank of Punjab, SNGPL, PTCL, Jahangir Siddiqui Company and Pace (Pak) Limited were the top 10 well performing scrips.
Senior brokers like Aqeel Karim Dhedy, best known as AKD, believe that the current boom at the stocks market was natural and a reaction to the May 11 political development that put PML-N in the driving seat to revive the politically-strategically-troubled country’s economy.
“Yes, the boom is natural,” AKD told Pakistan Today.
Other market bigwigs like Muhammad Yaseen Lakhani, former KSE chairman and sitting Board of Director, says the index was yet to hit the all time high. This, he said, is because of the investors’ confidence in the “pro-business” regime of Mian Nawaz Sharif who in the past had proved himself as business and industry-friendly.
Many of the market participants whereas are upbeat that the new government would, reportedly on June 12, present a business-friendly federal budget, the analysts at Topline Research foresee a neutral impact of the new fiscal plan on equity market.
“The federal budget for 2013-2014 due on June 12 is likely to be a manifestation of the new government’s vision of fiscal responsibilities by increasing tax revenues, limiting non-developmental expenditures and instituting structural reforms, particularly in the energy sector,” said the analysts.
The KSE, in its budget proposals, has asked for cut in corporate tax rates for listed companies to 25 percent. The SECP too has suggested a gradual reduction in corporate tax.
Other proposals like compulsory cash payout and penalizing companies who do not meet a certain threshold for cash payout have also been forwarded. It is proposed by KSE to extend tax rebate of 15 percent on corporate tax rate on new listings from existing one year to five years. KSE is also said to have proposed that the 10 percent tax on dividends be withdrawn as it was double taxation.
“KSE’s proposals regarding reduction in corporate tax rate, making cash payout mandatory and others are not likely to be accepted,” believe Topline analysts.
Further, they feel that 10 percent tax on dividends would be maintained. If the proposed 35 percent taxation on inter-corporate dividend income imposed, which the analysts say was not likely, it would negatively impact major corporate entities
They said the bourse’s movement would depend on the revival of economic activities that have been hampered for quite sometimes.
Also, they warned the proposed five percent WHT on the purchase of local cars would adversely affect the auto sector. “For others we expect the sector to be neutral,” said the Topline analysts.
Abdul Azeem of InvestCap Research sees the democratic process as having shaped the new political government that, he believes, made foreign and local investors stay bullish and keep investing at the KSE.
This, Azeem said, resulted in a significant improvement in the Price to Earning (PE) multiple for the 100 index companies.
“The market continues to trade at a deep discount on its key multiples, at 35 percent on PE and 56 percent on DY, to regional peers,” said he.
Such deep discount, he said, could be attributed to high currency, political and economic risk-associated premiums required by investors.
