Shares drop below 40,000 mark as inflation, coronavirus influence investor outlook

KARACHI: The Pakistan Stock Exchange began another week on a bearish note on Monday, with the KSE-100 index plunging 846.93 points (2.16 per cent) as analysts pointed to a need for fiscal adjustment and the market reacting to the impact of the coronavirus outbreak hurting imports.

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The index, which had settled for the weekend at 40,143.63, fell to 39,296.70 points at the market’s close. The apex of the day remained 40,150.34 points while the lowest the stocks tumbled to was 39,196.19.

Deputy Head of Research at AKD Securities, Ali Asghar Poonawala, said two things were visible in the stock market.

The first is the need to fill the fiscal gap. He said that even though the government is saying there won’t be a mini-budget, there is a need for some fiscal adjustment.

Secondly, Poonwala said that there was a knock-on impact from the coronavirus. He said that there are a lot of semi-used and raw material goods that come from China that have been held for over 30 days. He said that importers have to revert to alternative sources for importing the products, which are more expensive most of the time.

Poonawala added that this effect should continue for at least another 60 days.

He said risk-off sentiment was largely witnessed due to two main factors — first being the ongoing IMF negotiations where a roadmap to fix the fiscal gap is critical. The possible moves to raise taxation, likely through indirect means, are inherently inflationary, something the government has vowed to contain.

“In effect, the inflationary backdrop hampers the government from implementing sweeping reforms to raise revenues,” he explained.

“Secondly, perceptions have largely turned to profit-taking, while institutional investors are holding back on fresh allocations citing a worsening risk sentiment. The lack of concrete steps to tackle inflation and implement wholesale energy reforms are hurting expectations of stability.”

He said in the backdrop of worsening global industrial activity led by slowing growth in Asia, stemming from the Coronavirus outbreak in China, “we find possible negatives beginning to impact investor expectations at home as well.”

In his remarks on the market trends, Head of Foreign Institutional Sales at Next Capital Limited Muhammad Faizan said that the talk of new taxes through a mini-budget was causing “continuous pressure”.

He explained that IMF-mandated tax collection was relatively low, adding that the IMF is talking about introducing new taxes.

Faizan said the result season has also started and the results are not expected to be promising.

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