Post-budget bloodbath: KSE-100 suffers one of 2022's worst falls, plunges 1,135 points

The stock market suffered one of its worst falls this year in the first post-budget session, as the benchmark KSE-100 Index recorded a decline of 1,135 points with investors gauging the impact of new budgetary measures imposed by the government.

The KSE-100 closed at 40,879.93, a fall of 1,134.8 points or 2.7% — the lowest level since November 27, 2020.

On Friday, the KSE-100 index rose 278.77 points or 0.67% to close at 42,014.73 points in anticipation of the budget. However, a number of measures announced by the government were seen as a major negative for various sectors, especially banking and auto.

Equities initially opened in the green as the KSE-100 Index hit an intra-day high of 42,070, up 55 points. However, a massive selling spree was witnessed across the board soon after, pushing the index towards its intra-day low at 40,835, a drop of 1,180 points.

Topline Securities in its post-market comment said banking sector's stocks took a major hit due to a massive increase in taxation imposed by the government during the budget announcement.

“Negative sentiment in the market has come due to budgetary measures announced by the government on Friday,” Sana Tawfik, vice-president research and a senior analyst at Arif Habib Limited (AHL), told Business Recorder.

The analyst said the increase in taxes on the banking sector, an index heavyweight, contributed to the slump. The auto sector, also hit by taxes, was also down during trading.

Post-budget press conference: Fiscal tightening on the cards

The federal government on Friday proposed to increase the tax rate for banking sector, i.e., from 39% to 45%, including Super Tax for the next fiscal year.

In his budget speech, Federal Minister for Finance Miftah Ismail said that the banking sector has earned windfall gains due to higher interest rates and risk-free investment in government securities. Therefore, in order to capture the real tax potential, the tax rate on banking companies is proposed to be enhanced to 45%.

“Banking sector profitability may decline by 19% due to these proposals,” said Tawfik.

“Furthermore, a spike in US inflation is negatively impacting equities across the globe, raising expectations of a Fed rate hike,” she said.

The US consumer prices hit a new four-decade high, rising 8.6% and topping what economists thought was the peak in March.

With Russia’s war on Ukraine continuing to pressure global fuel and food prices, and amid ongoing supply chain uncertainties due to Covid-19 lockdowns in Asia, experts now say the expected easing of inflationary pressures will take much longer to materialise.

Meanwhile, Tawfik expects the local markets to remain under pressure throughout the month of June amid upcoming developments from the IMF and Financial Action Task Force (FATF).

“Uncertainty will remain unless positive news is received from the IMF and the FATF,” she said.

Sectors dragging the benchmark index lower included banking (482.45 points), oil and gas exploration (135.01 points) and cement (97.63 points).

Volume on the all-share index increased to 163.8 million from 115.87 million on Friday. The value of shares traded increased to Rs4.35 billion from Rs3.07 billion recorded in the previous session.

Hum Network Limited was the volume leader with 24.56 million shares, followed by Cnergyico PK Limited with 6.89 million shares, and K-Electric Limited with 6.53 million shares.

Shares of 331 companies were traded on Monday, of which 50 registered an increase, 263 recorded a fall, and 18 remained unchanged.