Budget and Monetary Policy to Steer Pakistan Stock Market

Budget and Monetary Policy to Steer Pakistan Stock Market

The upcoming week at the Pakistan Stock Exchange (PSX) is expected to be driven by two key events: the federal budget for 2024-25 and the Monetary Policy Statement (MPS), according to analysts at Arif Habib Limited.

These pronouncements are likely to significantly influence investor sentiment, potentially shaping the direction of the market.

Budget Measures in Focus

The unveiling of the federal budget holds particular weight, as any major tax changes could have a ripple effect. This concern was evident during the past week, with the market experiencing a substantial decline due to fears of a potential increase in capital gains tax or dividend income tax.

Market Performance Despite Positive Developments

Interestingly, this negative sentiment came despite positive developments on the economic front. Consumer Price Inflation (CPI) for May 2024 reached its lowest level since November 2021, clocking in at 11.8% year-on-year (YoY) compared to 17.3% in April 2024. Additionally, the trade deficit showed minimal growth of just 0.1% YoY, settling at USD 2.1 billion for May 2024.

Furthermore, tax collection saw a significant rise of 33% YoY, reaching Rs 760 billion against a target of Rs 745 billion. The positive economic indicators continued with a decrease in fuel prices and an uptick in the foreign exchange reserves held by the State Bank of Pakistan (SBP). The Pakistani Rupee also witnessed a slight appreciation against the US dollar.

Market Response and Key Movers

Despite these positive signals, the KSE-100 index fell by 2.80%, closing at 73,754 points. This decline was attributed to several sectors, with commercial banks, oil marketing companies (OMCs), fertilizers, technology & communication, and power sectors leading the negative contributions. Conversely, automobile assemblers, pharmaceuticals, and auto parts & accessories provided some positive movement.

On a scrip-wise level, companies like MEBL, OGDC, HBL, SYS, and MARI were among the major decliners, while MTL, LUCK, TRG, SEARL, and SHEL witnessed gains.

Foreign and Local Investor Activity

Foreign investors remained net buyers during the week, with a net inflow of USD 4.4 million compared to USD 5.5 million the previous week. Conversely, local investors, particularly individuals and brokerage firms, were net sellers. The average trading volume saw a slight decrease, while the average traded value edged up marginally.

Looking Ahead

With the budget and MPS looming, next week promises to be a crucial one for the Pakistan Stock Exchange. Investors will be closely watching these pronouncements to gauge their potential impact on the market and make informed investment decisions.