Another meltdown at PSX as benchmark sheds 641 points on govt's indecision

Published May 11, 2022
A screenshot of market activity on the KSE-100. – PSX website
A screenshot of market activity on the KSE-100. – PSX website

The Pakistan Stock Exchange (PSX) witnessed intense selling pressure on Wednesday as the benchmark KSE-100 index lost over 1,100 points in intraday trading before regaining some of its losses to close 641.21 points, or 1.47pc, down.

According to the PSX website, the KSE-100 Index opened at 43,504.36 points and went up 145 points initially to reach a high of 43,649.59.

But after around 9:34am, the bears took control and the market began sliding. The index hit the day’s low of 42,394.32 — a decline of 1,110.04 points or 2.55 per cent, at around 2:35pm.

Raza Jafri, head of Equities at Intermarket Securities, said urgent decisions were needed from the federal government. "The government has been dragging its feet so far which is eroding investors' confidence and leading to panic selling."

The market, he emphasised, needed the International Monetary Fund (IMF) programme to resume quickly to find a foothold. "If the programme continues to be delayed, buyers will continue to shy away," he added.

Meanwhile, First National Equities CEO Ali Malik blamed the political uncertainty for the slump in the market.

"The rate of return on fixed income has reached 14pc. If it expands, the market will recover faster from here. At present, our market is cheap in terms of profit in the whole region, but the confidence of investors is not high due to the domestic situation," he said.

Today's decline comes two days after the PSX witnessed a meltdown during which the KSE-100 lost 1,447.67 points.

Share prices nosedived as investors expressed worries about the country’s debt repayment capacity amid depleting foreign exchange reserves.

Dawn's editorial on Wednesday noted that the most important factor behind the erosion of investor sentiment has been the failure of the new coalition government to come up with a credible plan to take politically tough decisions to fix the economy. For example, it remains undecided about the reversal of the fiscally unsustainable energy subsidies, which is the ‘prior action’ that IMF wants it to take before it agrees to restart funding.

In recent meetings with the new finance minister, the IMF has linked the continuation of its loan programme with the reversal of fuel subsidies, which were introduced by the previous government. However, Prime Minister Shehbaz Sharif has now twice rejected the Oil and Gas Regulatory Authority's summaries to increase fuel prices.

The PTI had announced a four-month freeze (until June 30) on petrol and electricity prices on February 28 as part of a series of measures to bring relief to the public.

The PML-N coalition government had severely criticised Imran Khan's government for "derailing" the IMF program through fuel subsidies but despite being at the helm for a month, it has not reversed the subsidies. The finance minister has repeatedly said these subsidies are not feasible and are costing the government Rs120 billion a month.

Ismail said petrol should have been priced at Rs245 per litre according to the agreement the former government did with the IMF. However, the PML-N led government was still selling it at Rs145 per litre and would try its best to maintain that price, he added — a sign that the new government is finding it difficult to take a decision that might be unpopular with its voters.

Moreover, the editorial pointed out, that there are differences within the PML-N on how to deal with the Fund, with former finance minister Ishaq Dar, who is opposed to IMF ‘dictation’, wanting a new loan with ‘softer’ conditions. "If the strings of the finance ministry are being pulled from London, then Finance Minister Miftah Ismail has his hands tied."

Meanwhile, the dollar reached an all-time high against the rupee earlier today, breaching the Rs190 mark in the interbank.

The greenback appreciated by Rs1.44, surpassing Tuesday’s close of Rs188.66. The last time the dollar reached an all-time high was on April 1, when it crossed the Rs189 mark.

The rupee is under pressure due to the higher oil import bill and speculation awaiting the Saudi package, Ahsan Mehanti, director of Arif Habib Group told Mettis Global.

General secretary of the Exchange Companies Association of Pakistan, Zafar Paracha, said delays in talks with the International Monetary Fund was putting pressure on foreign reserves.

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