Bloodbath: KSE-100 closes with 978-point fall as Fitch's downgrade dents sentiment

Ongoing political uncertainty followed by Fitch Ratings' downgrade of Pakistan's outlook added to investors' woes at the Pakistan Stock Exchange (PSX), as the benchmark KSE-100 Index ended the trading session 978 points lower on Tuesday.

After a sideways opening, the market witnessed a selling spree across the board over uncertain political and economic conditions and a freefall of Pakistani rupee.

At close on Tuesday, the benchmark index settled at 40,389.07, a drop of 978.04 points or 2.36%.

The decline follows that of Monday's when the benchmark KSE-100 Index lost over 700 points amid renewed political uncertainty after the Punjab by-polls.

Rattled: KSE-100 plunges over 700 points on renewed political uncertainty

"The deprecation of Pakistani Rupee against the US Dollar and increased uncertainty due to political noise dented investor confidence," said Capital Stake in a post-market comment.

On Tuesday, Fitch Ratings also downgraded Pakistan’s outlook from stable to negative in view of the significant deterioration in the country's external liquidity position and financing conditions since early 2022.

Fitch saw considerable risks to implementing the International Monetary Fund (IMF) programme and to continued access of Pakistan to financing after the programme's expiry in June 2023 in a tough economic and political climate.

Its announcement comes after Moody's Investors Service also downgraded the country’s outlook to negative from stable last month, citing Pakistan's heightened external vulnerability risk and uncertainty around the sovereign's ability to secure additional external financing to meet its needs.

However, Moody's announcement came when talks with the IMF were still ongoing. Last week, the IMF did reach a staff-level agreement with Pakistan authorities.

“Despite reaching a staff-level agreement with the IMF last week, investor confidence has not returned,” said Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited.

“The downgrade by ratings agencies suggests investors are seeing political volatility ahead, especially when it comes to the government taking fiscal consolidation measures,” said Rauf.

“Unpopular decisions are needed for the economy and resumption of the IMF programme. In the current political climate, these measures have taken a back seat,” said Rauf.

Moreover, pressure in the currency market was also being reflected at the PSX, said Rauf. Pakistan’s rupee closed at a record low of 221.99 against the US dollar on Tuesday, going as low as 224 during intra-day trading amid renewed political uncertainty that wrecked market confidence and also gave “speculators” additional fodder.

Meanwhile, sectors driving the benchmark index downwards included banking (236.12 points), oil and gas exploration (139.97 points) and fertiliser sector (131.05 points).

Volume on the all-share index inched up to 194.87 million from 151.35 million on Monday. The value of shares traded also improved to Rs5.78 billion from Rs4.36 billion recorded in the previous session.

K-Electric Limited was the volume leader with 19.62 million shares, followed by WorldCall Telecom with 17.68 million shares, and Cnergyico PK with 9.97 million shares.

Shares of 339 companies were traded on Tuesday, of which 46 registered an increase, 285 recorded a fall, and 8 remained unchanged.