Bears dominate at PSX amid profit-taking, year-end selling

• KSE-100 Index slipped to intra-day low of 109,858.88.
• Decline reflects impact of year-end portfolio adjustments.
• Weak rupee, foreign outflows contributed to bearish trend: analyst.

The capital market faced ongoing bearish trends on Thursday as profit-taking and year-end selling affected investor sentiment. Despite some support from improving macroeconomic indicators, stricter tax amendments and broader economic uncertainties contributed to a cautious market stance.

The Pakistan Stock Exchange's (PSX) benchmark KSE-100 Index initially climbed to an intraday high of 112,480.6 but later slipped to a low of 109,858.88 before closing at 110,423.32. This marked a sharp decline of 1,991.48 points, or -1.77%, from the previous close, reflecting the impact of year-end portfolio adjustments, keeping the market under pressure.

Ahsan Mehanti, Managing Director and CEO of Arif Habib Commodities, told Geo.tv that the bearish trend can be attributed to political uncertainty, concerns over cautious State Bank's policy easing and uncertainty over outcome of slippages on tax collection targets tabled by International Monetary Fund.

"Pressure on future contracts rollover, weak rupee, and foreign outflows played a catalyst role in bearish activity," Mehanti added. 

The market closed in the red on Tuesday, dropping to an intraday low of 112,294.42 before closing at 112,414.8, marking a decline of 1,509.61 points or -1.33% from the previous close of 113,924.41.

The stock market was closed on Wednesday due to a public holiday.

Pakistan's exports for the first five months of FY2024-25 grew by 12.57% to $13.691 billion from $12.162 billion in the same period last year. However, November exports fell by 5.97% to $2.804 billion, down from $2.982 billion in October.

Shipments to the European Union (EU) increased by 14% to $4.8 billion, matching total exports to the broader Asian region. Exports to the US, Pakistan’s largest export destination, rose by 14% to $2.4 billion. Conversely, exports to China dropped by 14%, while shipments to the UAE and Afghanistan surged by 35% and 42%, respectively.

Pakistan's credit default swap (CDS) spreads tightened by 88% to 1,493 basis points, signalling reduced credit risk. Foreign exchange reserves rose to $12 billion in December 2024, a significant increase from $2.9 billion in February 2023, supported by the State Bank of Pakistan's (SBP) recent 200 basis point policy rate cut from 15% to 13%.

The current account surplus in November reached $729 million, a decade-high figure, compared to a $148 million deficit in November 2023. This led to a five-month surplus of $944 million in FY2024-25, contrasting sharply with a deficit of $1.67 billion during the same period last year.

Foreign direct investment (FDI) during the first five months of FY2024-25 grew by 31% year-on-year to $1.124 billion, with $219 million recorded in November. Major investors included China, Hong Kong, and the UK, focusing on the power and financial sectors.

The proposed Tax Laws (Amendment) Bill, 2024, seeks to impose stricter restrictions on non-filers, barring them from purchasing vehicles over 800cc, acquiring high-value properties, or making large financial transactions. These measures have raised concerns about reduced liquidity and consumer spending, further contributing to market caution.

While improved macroeconomic fundamentals offer some support, trading activity reflects a balance between profit-taking and optimism over Pakistan’s economic recovery.