At the Karachi equity market last week, investors continued being possessed by uncertainty.
The trading week ending on July 22 saw the benchmark index reclaim nearly all of what it lost in the preceding two weeks. Even though average trading volume picked up significantly (nearly 70% week-on-week), participation remained weak at an average of 58 million shares, as foreign drivers kept themselves on the sidelines.
According to NCCPL data, foreign investors sold equities worth $22 million, taking the net month-to-date outflow to $17.7 million. This means that unless local investors turn bullish overnight creating a divergence in perception of local and foreign investors; equities would keep shredding in the weeks ahead. Or, otherwise remain flat at the most.
Plenty of possible good news triggers have been making rounds at the market in the past few months, such as relative stability in inflation, improved current account picture, and expectations of cut in discount rate. But so far they have failed to drive up sentiments.
Perhaps, the latest inclusion in the goody bag: the relaxation on the CGT front will help bring investors back to the board. At least, thats what Topline Securities latest note on the subject suggests.
Citing that "one of the reasons for record low volumes was the imposition of gain tax and complexities in its computation," Topline noted that the FBRs draft amendments on the matter "have partially addressed the issues being faced by the market participants.
The draft amendments are no doubt investment friendly. For instance: the brokers will no longer be held responsible if their client disappear without paying the tax. "Now the FBR can take information from the National Clearing Company, as per the amended rules," Topline explained.
The fact that draft rules allow investors to adjust the cost of leverage while calculating the CGT, also "bodes positive for MTS which has so far not lured interest of market participants," according BMA Capital.
Then again, had CGT been the biggest thorn in KSE-100s path; perhaps it wouldn have risen nearly 30 percent between end-June to mid-January. In other words, the real driver may not be the CGT, but elements like possible FSV relaxation, or possible breakthrough in the current deadlock between Pakistan and the US.
In any case, while its too early to assert that bulls will reign supreme; even if they do, don expect the market to rally beyond 12,700 points in the short term, for there may still be many a slips between the cup and the lip.