Bears continued their stampede on Tuesday on the trading floor as shares at the Pakistan Stock Exchange (PSX) declined by more than 700 points in intraday trade.
The benchmark KSE-100 index declined 768.80 points, or 0.66 per cent, to stand at 115,486.32 points at 11:04am from the previous close of 116,255.12.
Awais Ashraf, director research at AKD Securities, said, “Investors are concerned about the impact of new government law that stops non-filers from investment in equities, mutual funds and debt instruments.”
However, he said that they did not “foresee this to have some impact as equity markets are well regulated in Pakistan, thanks to FATF [Financial Action Task Force] compliance”.
Furthermore, he highlighted that this was “a good time to enter into the equities as interest rates are anticipated to fall to single digits” due to a strong external account.
“Falling returns from alternative investments are expected to make equities the preferred asset class in 2025,” he added.
Yousuf M. Farooq, director research at Chase Securities, attributed the momentum to the market going through a “profit-taking and correction phase following a significant rally”.
“Such movements are a normal part of market cycles after substantial gains,” he said. “However, investor sentiment remains cautious due to reports of an increase in the gas circular debt and higher tariffs for captive power plants.”
The International Monetary Fund (IMF) has asked the government to impose a substantial levy on gas supply to industrial captive power plants (CPPs) to eliminate any cost benefit between the grid power and their in-house electricity generation.
Under the $7bn Extended Fund Facility (EFF) signed in September last year, Pakistan has to deliver on one of the major structural benchmarks that required gas disconnections to CPPs by the end of January 2025 to qualify for disbursement of the second of the seven $1bn tranches in March. The two sides will meet for the first biannual review in the second half of February.
According to Farooq, “The economy is transitioning towards reliance on the national grid, though the full impact of this shift remains uncertain.
“Captive power plants have historically been reliable, high-paying customers for government gas companies. Their transition to the grid should eventually benefit all grid users by enhancing efficiency and utilisation,” he said.
Moreover, he highlighted that interest rates remained another focal point for market participants.
“While we are optimistic that interest rates could move into single digits over the next year, most participants believe rates will bottom at around 11pc, suggesting that elevated rates might become the new normal,” he explained.
Furthermore, he elaborated that inflation was “expected to rise after March and remain high, which could constrain stock market performance in the short-term”.
“Inflation has historically remained low in Pakistan in periods with little to no currency devaluation,” he said.
Given this scenario, Farooq advised retail investors to look beyond short-term market fluctuations.
“Instead, they should focus on adding small, consistent contributions to their long-term, diversified portfolios each month,” he said.
Yesterday, shares became bearish as news flow on political and economic fronts turned investors jittery, triggering profit-selling, forcing the benchmark KSE 100 index to close in the red.
An analyst attributed the momentum to political uncertainty, and the International Monetary Fund (IMF)’s strict levies on industrial captive power plants led to institutional profit-taking.
More to follow
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