KARACHI: The dramatic decline in stock prices in the first four days of the outgoing week was astonishing. The KSE-100 index plunged by 2,049 points, or 4.5 per cent, to settle at 43,788 points at the end of the week.

A relief rally on Friday recovered 1,008 points, though it could not wipe off the blemish of the worst weekly performance in the year both in terms of slump in points as well as percentage over one year. The market had last seen such dismal performance in the week ended Mar 27, 2020 with a drop in index by 2,558 points, or 8.3pc, week-on-week.

The poisoned political atmosphere in the run-up to the election of the chairman and the deputy chairman of the Senate on Friday kept investors in a state of uncertainty which forced panicky investors to ditch the risky equities and switch over to fixed income securities. To the chagrin of the government, the Election Commission of Pakistan came up with an unexpected decision to issue the notification for the opposition candidate’s victory in the Senate elections.

On the economic front concerns over rising inflation, volatility in the prices and the swelling numbers of new Covid-19 cases dampened investor confidence. But the biggest setback during that week was the market talk of the cabinet’s approval to an income tax amendment for withdrawal of 80 different income tax exemptions on companies to meet IMF conditions. It was expected to increase government revenue collection by Rs100-Rs150bn. The worst among the proposed amendments was the withdrawal of tax exemption status of mutual fund. Traders said that clarifications that no such clause of tax on mutual funds was under consideration triggered Friday’s rally.

Pundits look forward to a moderately positive market in the upcoming week. The rally on the last day of the outgoing week was a relief for investors as the clouds on the political scene appeared to dissipate for the time being with the government nominees winning the seats of the chairman and deputy chairman Senate.

However, the atmosphere would continue to remain polarised due to the Pakistan Democratic Movement’s long march to Islamabad/Rawalpindi purported to start from March 26.

On the economic side, with end to the result season, analysts would look forward to the monetary policy also to be unveiled this month, which most believe could propose slight hike in policy rates. The disconcerting issues would be the rise in Covid-19 cases which could lead to lockdowns. But the fear may be eased with the gradual roll out of vaccines.

Published in Dawn, March 14th, 2021