Cautious trading at PSX as market fluctuates

The capital market witnessed a turbulent session on Friday, marked by fluctuations as investor caution dominated trading activity.

Lingering concerns over global economic trends, persistent year-end profit-taking, and uncertainty surrounding recent policy measures overshadowed improved macroeconomic indicators that continue to strengthen long-term market confidence.

The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index began the day on a positive note, climbing 1,232.73 points, or 1.16%, to hit an intraday high of 107,507.69. However, heightened profit-taking pressure and cautious sentiment reversed early gains, dragging the index to an intraday low of 105,772.84.

Market participants remained wary of global economic uncertainties and the potential impact of recent fiscal and monetary policy adjustments. Concerns over foreign outflows and rupee stability continued to weigh on sentiment, while year-end portfolio adjustments contributed to profit-taking in key sectors, particularly in blue-chip stocks that had rallied in recent sessions.

The session followed the release of the 2024 Global Consumer Confidence Index (CCI), which revealed consumer sentiment at its strongest level in three years. The index rose by +0.8 points, reflecting growing public optimism amid improving macroeconomic indicators.

The report showed a significant shift in economic perceptions, with the percentage of individuals describing the economy as “strong” climbing from 4% at the start of the year to 16% in December. Inflation concerns fell to their lowest level in three years, while confidence in job security, savings, and purchasing power continued to grow.

The report also highlighted a fourfold increase in the ease of making major purchases, such as homes and vehicles, indicating greater financial optimism among consumers.

Investor concerns were heightened by recent data from the State Bank of Pakistan (SBP), which revealed a 112% year-on-year surge in profit and dividend repatriations by multinational companies, reaching $1.128 billion in the first five months of FY2025.

November alone accounted for $321.6 million, a 586% year-on-year increase, although this marked a 22.3% month-on-month decline due to the clearing of pending payments and eased restrictions on dollar outflows.

Adding to market pressure, the government introduced The Tax Laws (Amendment) Bill, 2024, proposing stringent measures against non-filers. The legislation includes barring non-filers from purchasing vehicles above 800cc, real estate, and shares beyond specific limits, while also restricting their ability to open bank accounts or execute large financial transactions.

The Federal Board of Revenue (FBR) has been granted powers to freeze accounts and properties for non-compliance. These measures have raised concerns over reduced liquidity and spending, contributing to investor caution.

Despite the recent market fluctuations, Pakistan’s macroeconomic fundamentals continue to strengthen. The country recorded a $729 million current account surplus in November, the largest since February 2015. For the first five months of FY2025, the surplus stood at $944 million, compared to a $1.67 billion deficit in the same period last year.

This improvement was driven by a reduction in the trade and services deficits and lower interest and dividend repatriations.

Foreign direct investment (FDI) also rose 31% year-on-year to $1.124 billion, with significant inflows from China, Hong Kong, and the United Kingdom. Meanwhile, remittances grew by 29% year-on-year in November to $2.9 billion, bringing the five-month total to $14.8 billion.

The SBP’s 200 basis point rate cut, which reduced the policy rate to 13%, reflects efforts to stimulate economic growth amidst easing inflation, which fell to 4.9%, its lowest level since April 2018.

Friday’s volatility followed Thursday’s historic sell-off, during which the KSE-100 Index plummeted 4,795.32 points (-4.32%) to close at 106,274.97, marking the steepest single-day decline in PSX history.

The sell-off was driven by year-end redemptions from local mutual funds and institutional profit-taking, with heavyweight stocks such as MARI (-10%), HUBC, UBL, OGDC, and ENGRO collectively contributing over 1,500 points to the decline, according to Topline Securities.

Despite the negative sentiment, trading volumes remained robust, with 1,155 million shares traded and a turnover of Rs 56.6 billion.