Stocks plunge 1,100 points on concerns over Budget 2022-23

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A snapshot of the intraday trade at the Pakistan Stock Exchange. — Photo via PSX website
A snapshot of the intraday trade at the Pakistan Stock Exchange. — Photo via PSX website

The Pakistan Stock Exchange witnessed intense selling pressure on Monday with the benchmark KSE-100 index opening in the red and plunging by 1,134.80 points to close well below the 41,000 mark in what experts said was a reaction to the annual budget presented by the federal government on Friday.

Analysts linked today's bearish activity to the government increasing taxes on the banking sector in the budget, among other factors.

According to the Pakistan Stock Exchange (PSX) website, the index was down 1,016.79 points at 3pm and continued to slide in the last hour of trading to close 1,134.80 points, or 2.7pc, down.

Head of research at Intermarket Securities, Raza Jafri, said the stock market was under pressure today due to the index heavyweight banking sector being sharply down.

"This is because the banking sector has been saddled with a significantly higher tax rate," he said, adding that the new budget removes the tax credit available on investing in mutual funds and life insurance, which is also raising concerns over redemptions.

Head of research at Aba Ali Habib Securities, Salman Naqvi, also said that the bearish trend was a result of increased taxes on the banking sector, which has significant weightage in the stock market.

Moreover, he said, the government had proposed more taxes for the construction sector in the new budget and that had led to a slump in cement and steel shares.

Naqvi also attributed the plunge to Finance Minister Miftah Ismail saying that the International Monetary Fund (IMF) was unhappy with the budget.

Speaking at a post-budget news briefing on Saturday, the finance minister had built a case for more challenging decisions and hinted at reducing or withdrawing relief on personal income tax provided in the next year’s budget, saying that the IMF was not ready to give up the demand for higher revenue yield.

"It is a strange thing that he has said," Naqvi said, adding that the budget otherwise was not as bad to have solely led to the sliding of the KSE-100 index and was seen as "neutral to positive".

Arif Habib Corporation's Ahsan Mehanti also cited increased taxes on the banking sector as the main reason behind today's meltdown. "[The] PSX is witness[ing] massive pressure in scrips across the board amid post-budget consolidation after higher taxes [were] slapped on blue-chip corporates, windfall taxes on [the] banking sector and [the] removal of tax credits on mutual and pensions funds," he told Dawn.com.

"Institutional selling on global equity sell-off and [a] slump in global crude oil prices played a catalyst role in the bearish activity," he added.

In the budget for the upcoming fiscal year, the government has increased windfall gain tax for banks from 39pc to 42pc that were earning secure profits because of huge investments in government securities.

The stock market had closed last week on a slightly positive note on rising crude oil prices and the likely resumption of the IMF loan programme in the near term.

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