The Pakistan Stock Exchange (PSX) experienced pronounced bearish trends in recent trading sessions as profit-taking, year-end selling, and economic uncertainties weighed on investor sentiment. Despite improvements in macroeconomic indicators, stricter tax amendments and cautious policy measures maintained a grip on the market.
Sharp Decline in KSE-100 Index
On Thursday, the benchmark KSE-100 Index displayed significant volatility. It reached an intraday high of 112,480.6 before plunging to a low of 109,858.88, closing at 110,423.32. This marked a sharp decline of 1,991.48 points (-1.77%) from the previous session. The downturn was attributed to year-end portfolio adjustments and profit-taking by institutional investors.
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Tuesday’s session also saw the market closing in the red, with a decline of 1,509.61 points (-1.33%), settling at 112,414.81. Ahsan Mehanti, Managing Director of Arif Habib Commodities, highlighted the impact of political uncertainties, cautious State Bank policies, and concerns over missed tax collection targets tabled by the International Monetary Fund (IMF). “Pressure on future contracts rollover, weak rupee, and foreign outflows played a catalyst role in bearish activity,” Mehanti noted.
Economic Indicators Show Mixed Signals
Amid the market’s bearish performance, Pakistan’s economic indicators presented a mixed picture. Exports for the first five months of FY2024-25 increased by 12.57% year-on-year to $13.691 billion. However, November exports declined by 5.97% to $2.804 billion compared to October.
Shipments to the European Union (EU) grew by 14%, while exports to the United States rose by an equal percentage. Conversely, exports to China fell by 14%, while shipments to the UAE and Afghanistan surged by 35% and 42%, respectively.
Foreign exchange reserves saw a remarkable recovery, climbing to $12 billion in December 2024 from a low of $2.9 billion in February 2023. The State Bank of Pakistan’s (SBP) recent policy rate cut of 200 basis points, from 15% to 13%, further bolstered economic sentiment.
Additionally, Pakistan recorded a current account surplus of $729 million in November, the highest in a decade, contributing to a five-month surplus of $944 million for FY2024-25. This contrasts sharply with a $1.67 billion deficit during the same period last year.
Tax Amendments Add Pressure
The Tax Laws (Amendment) Bill, 2024, introduced measures barring non-filers from purchasing vehicles over 800cc, acquiring high-value properties, or making large financial transactions. While aimed at tightening compliance, these amendments raised concerns over reduced liquidity and consumer spending, adding to the market’s cautious stance.
Investor Behavior and Key Performers
The approaching year-end rollover of futures contracts intensified selling pressure, with institutional investors trimming portfolios. Major laggards included Fauji Fertiliser Company, Mari Petroleum, and MCB Bank, which collectively dragged the index down by 850 points.
Despite the downturn, certain stocks showed resilience. UBL, Dawood Hercules Corporation, and Sui Northern Gas Pipelines Ltd contributed to index gains. The trading volume increased to 881 million shares, with WorldCall Telecom leading as the most actively traded stock.
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While the market’s bearish sentiment persists, improving economic fundamentals such as rising foreign direct investment (FDI), a stronger current account, and growing export volumes signal potential recovery. FDI during the first five months of FY2024-25 grew by 31% year-on-year, with major investments from China, Hong Kong, and the UK in the power and financial sectors.