Lackluster performance at PSX to continue

May 22, 2023

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The Pakistani equity market is likely to experience a lackluster session today due to a combination of factors, including deteriorating political sentiment, a proposed tax hike, and a cut in the PSDP program.

The Reform and Revenue Mobilization Commission (RRMC) has put forward a proposal to impose a tax ranging from 5% for listed companies to 7.5% for non-listed companies on their accumulated profits. This proposal aims to generate approximately PKR 338 billion in tax revenue. The proposed tax hike has been met with mixed reactions from the business community, with some expressing concerns that it could stifle economic growth.

In addition to the proposed tax hike, the government has also cut the PSDP program for FY23 by PKR 79bn to PKR 567bn. The PSDP is a major source of funding for development projects in Pakistan, and its reduction could have a negative impact on economic growth.

Finally, media reports indicate that the finance minister has directed commercial banks to open LCs for export-oriented sectors without any reference to the State Bank of Pakistan (SBP). This move is seen as an attempt to boost exports, but it could also lead to a decline in foreign exchange reserves.

Furthermore, stringent Budget Measures in FY2024 is also making Investors wary about the Future market Performance.

Here are some additional details about the factors that are likely to weigh on the Pakistani equity market today:

Deteriorating political sentiment: The political situation in Pakistan has been deteriorating in recent months, with the country facing a constitutional crisis. This has led to uncertainty and volatility in the markets.
Proposed tax hike: The proposed tax hike on accumulated profits is likely to have a negative impact on corporate earnings and investor sentiment.
Cut in the PSDP program: The cut in the PSDP program is likely to lead to a decline in economic growth and government spending. This could also have a negative impact on the corporate sector.
Direction of LCs without reference to SBP: The direction of LCs without reference to SBP could lead to a decline in foreign exchange reserves. This could also have a negative impact on the economy.

Overall, the Pakistani equity market is facing a number of headwinds that could lead to a lackluster session today. Investors are likely to remain cautious until there is more clarity on the political situation and the economic outlook.

Previously,

KSE100 opened on a slightly positive note but the session remained volatile on Friday. The market reached a high of 187 points and a low of 88 points before closing with a gain of 157 points at 41,599 points. Trading volumes were higher than the previous session.

The local stock market is currently 0.6% above its 200-day moving average. Volatility is relatively normal compared to the average volatility over the last 10 trading sessions. Volume indicators reflect moderate flows of volume into the index. Trend forecasting oscillators are bullish and seem to support the bullish view.

The chart formation suggests that the index may find initial support near 41,300 points. A break below this support level could lead to further weakness towards 41,100 and 40,800 points. Alternatively, the index could face resistance near 41,800 points initially before moving towards 42,000 and 42,200 points. It is recommended to trade with a cautious approach and focus on profit taking.

Here are some additional details about the market:

The market was led by gains in the banking and energy sectors.
Foreign investors were net buyers of shares
The rupee closed weaker against the dollar.
Overall, the market is expected to remain volatile in the near term.