Capital market faces more hoops of fire in next fiscal year

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KARACHI: Stocks have oscillated sharply in the 11 months of this financial year to end down 4% compared to the same period last year, marred by uncertainty over the path of the economy, the materials supercycle raw, geo and local political unrest, while the upcoming exercise will bring more hoops of fire, analysts say.

In a bid to promote ease of investment in the capital markets, the Pakistan Stock Exchange (PSX), the country’s apex stock exchange, in its budget proposals recommended budget officials to align tax rates on capital gains (CGT) on the sale of securities with other regional stock exchanges/OECD countries and with CGT rates on the sale of real estate. The stock exchange also favored the introduction of a grandfather clause for the tax treatment of listed companies.

Khurram Schehzad, CEO of Alpha Beta Core, said the stock market remained volatile from the second half of 2021 to the first half of 2022. From January 2022 to present, the market is down 8%.

“Macroeconomic issues, mainly political instability, policy inconsistency have affected investor sentiment,” he said.

The profitability of listed countries improved last year. However, investors do not know the future of the government. Consistency and continuity are the issues, he said.

“The global economy is also affected by commodity prices and the Russian-Ukrainian war has affected food and energy.”

Schehzad said these countries provide around 20-25% share to the whole world. “The increase in imports and the current account deficit are like a double-edged sword for us,” he said.

Throughout the year, he said, the rupee remained volatile against the dollar.

“Macro, global and local political issues affect the market. Internationally, interest rates are also increased. The coming year will be difficult for equities. Until the IMF program is approved, political stability is not there, volatility is likely to remain.

Hopefully clarity could start to emerge after the budget if the IMF gets involved, he said.

The government raised oil prices, which was a timely move.

“If the IMF is on board and the rupiah improves, the stock market may regain confidence,” Schehzad said, adding, “If loans from friendly countries are rolled over, the market may face improvement as it is still undervalued and a huge opportunity is in front of us. With less uncertainty, the market will improve,” Schehzad said.

Ahsan Mehanti, an analyst at Arif Habib Corp, said the stock market has seen foreign capital flight of more than $300 million this year, which could be reduced by granting full CGT exemption to local/foreign investors and by strengthening the rupee abroad. community support. “To a greater extent, these outflows can be attributed to political and economic uncertainty,” Mehanti added.

He further said that the government should address and reduce the circular debt problem of Rs 3 trillion through corporate reforms, rationalization of energy prices, import subsidies and sale of failing public companies, which could improve the economic outlook and help the PSX recover to its previous high. position of more than 52,000 points.

Zafar Moti, a former director of PSX, said the year since the June close has not been good for the capital market. “The political crisis shook it, oil prices rose in the international market, and industry raw material prices rose,” Moti said, adding that their profitability was affected.

He said high interest rates were also affecting market sentiment.

“The Ukraine-Russia war has hit every stock market around the world, including ours, while the local political crisis has added to the uncertainty, leading the market to remain volumeless, directionless amid limited investor participation. After Covid was brought under control in Pakistan, everyone thought businesses were going to explode now.

“Investors re-entered the markets but it moved the other way.”

He said the country’s import bill had increased by around 30 to 40 percent and the balance of payments crisis had started to bite. “The IMF is demanding for all these things, which are increasing inflation which is at an all-time high. Price-sensitive inflation is increasing, while commodities are also becoming more expensive.

Moti said the next exercise should bring improvements.

“Budget for fiscal year 2023 would be the toughest and toughest in Pakistan’s history. Exemptions and subsidies would be removed. The salaried classes, services and listed companies would be more burdened. Black money would remain unchecked. More taxes would be imposed on those who are already under a ton of taxes,” he said.

He suggested that the capital market should receive some benefit by reducing the CGT, as the government did not derive any benefit from this tax.

“It demotivates the investor. It should be removed,” he said.

In the past fiscal year, index provider MSCI Inc. downgraded Pakistan to a frontier market after four years in the emerging market.

According to the MSCI, the Pakistani market no longer meets size and liquidity standards despite meeting market accessibility requirements under the Emerging Markets Classification.

Analysts said the size of the Pakistani market remained an issue as political and economic crises led to foreign outflows and low volumes.

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