Pakistan Stock Exchange faces turbulent week amid tax concerns

The Pakistan Stock Exchange (PSX) experienced a tumultuous week as it witnessed a significant drop of over 2,000 points. This decline was primarily attributed to concerns among investors regarding a potential increase in capital gains tax (CGT) and the uncertainty surrounding the State Bank of Pakistan's (SBP) upcoming monetary policy announcement. Investors approached the week cautiously, anticipating adjustments to taxes on capital gains and for the salaried class during the budget presentation.

Market participants adopted a cautious approach leading up to the SBP's monetary policy announcement on June 10. Despite some positive indicators such as the increase in SBP's foreign exchange reserves by $16 million to $9.11 billion, the market closed in negative territory. The Consumer Price Index (CPI) for May 2024 decreased to 11.8% year-on-year, marking the lowest level since November 2021, down from 17.3% in April 2024. Worker remittances also saw a month-on-month increase of 5.3% to reach $3.2 billion in May.

The week commenced with significant selling pressure on Monday, triggered by uncertainties related to the upcoming budget and terms of a new International Monetary Fund (IMF) loan program. The market sustained its downward trend throughout the week, with the KSE-100 index plummeting over 2,000 points by the week's end, settling at 73,754. Analysts highlighted extreme market volatility due to speculation about potential changes in CGT rates and other tax reforms.

Despite positive economic indicators such as the decrease in CPI and an increase in tax collection for May, the market sentiment remained pessimistic. Various sectors including commercial banks, oil marketing companies, fertilizers, technology, communication, and power generation witnessed negative impacts on the index. Foreign investors displayed mixed activity, purchasing shares worth $4.4 million during the week.

The Pakistan Stock Exchange encountered a challenging week characterized by uncertainties surrounding tax policies, monetary announcements, and budget presentations. Investors navigated through a volatile environment, reacting to economic indicators and policy speculations. Despite the setbacks, the market continues to adapt to changing circumstances, reflecting the resilience of Pakistan's financial landscape.