The share prices on Karachi Stock Exchange on Wednesday tumbled and bears strengthened their grip after Standard & Poor''s showed concerns over fiscal slippages leading to down revision of the country''s outlook and increased in three- and six-month treasury bill rates after almost nine months.
The benchmark Karachi Stock Exchange-100 share index closed at 10,202 points level, down 330 points from Tuesday''s closing of 10,532. The volume in the ready market was 178 million shares, against 264 million shares recorded a day earlier, whereas the volume in futures market was 100 million shares, against 112 million shares recorded previously. Open Interest in June contract was recorded at Rs 9.4 billion against Rs 9.2 billion recorded a day earlier.
The market opened on a positive note, but selling appeared as the index has gained almost 700 points since last Thursday. Offloading was triggered as the session came to an end after S&P showed concerns over the budgetary measures, which would weaken the country''s fiscal position and State Bank of Pakistan raised rates on three- and six-month treasury bills after almost nine months, hinting rise in interest rates.
But analysts at the money market said that rates of both tenors were aligned with the secondary market and the rate of one-year was static, which signalled that the central bank was unlikely to move discount rate in near future.
Faiza Naz, research analyst at Jahangir Siddiqui Capital Markets, said that the market remained weak throughout the day pertaining to stumpy volumes and lack of individual and institutional investor interest in the market. Moreover, commentary of Standard & Poor''s on Pakistan''s Budget FY07, in which S&P raised concerns over Government''s policy and stated that it might downgrade Pakistan''s outlook in case there was any slippage in fiscal position of the country, which further fuelled weak sentiment in the market.
Overall, losers outnumbered gainers by 224 to 60. Among losers, Oil and Gas development Company declined by 5.0 percent, D G Khan Cement fell 5.0 percent, National Bank of Pakistan lost 4.9 percent and Muslim Commercial Bank dropped 4.4 percent.
Tariq Hussain Khan, research analyst at Atlas Capital Market, said that another tedious session came to an end as the market moved in a wide range resulting in an across the board uncertainty. It was an opposite start from the huge recovery witnessed on Tuesday as investors preferred to reduce their positions in major scrips.
Ahsan Mehanti, chief executive of Shahzad Chamdia Securities, said that explanation of finance bill revealed that a number of more taxes was unfolded on shares trading which dampened the investors. S&P reaction over the budgetary measures that fiscal deficit would widen in the new fiscal year and the government would rely on more borrowing discouraged seasoned investors.
He hoped that the investment from mutual funds would increase in the mid-term as the government imposed a tax on 35 percent on mutual funds if they invested in badla market.
No major reason was found as investors adopted cautious strategy since the beginning, keeping the market in a narrow band. However, afterwards, Standard & Poor''s (S&P) issued a statement regarding the impact of recent budget and raised concerns over the country''s fiscal position. Furthermore, S&P also elaborated its statement with no immediate impact on the sovereign credit ratings that will possibly downgrade the existing outlook on the economy. As a result, the market received heavy selling orders and the index once again entered the dangerous level where further downside may create another spell of negative trend.
Hasnain Asghar from Hasnain Asghar Ali said that the major adjustment was mainly due to increase in trading cost, which was avoided on Tuesday, as some support was witnessed. Unfortunately, the index failed to sustain and a net loss of 329 points was witnessed despite mild institutional support towards the end. Technically, the index would continue to face resistance around 10325-10333. It is, therefore, recommended to capitalise on strength while company fundamentals should be looked for making investment decisions, as technically the index might stay under pressure.