Capital Market Expectations & Budget 2018-19

27^th April is one of the important day for the government as well as for the industry. But it’s even more for investors. It’s natural to look at the budget each year with the lens of Stock Market. PSX – Pakistan Stock Exchange is the barometer of the market value and economic activity. Last 4 years been instrumental for Stock Market and KSE-100 Index witnessed all time high during last year. However Capital Market has expectation from upcoming budget 2018-19.

Keep Check on Fiscal Deficit:

Government managed to keep in check on fiscal deficit in last 4 years and revival of economic activity & industrial growth remained evident. That was well received by market and eventually international credit rating agencies also. The larger challenge is the balance of payments to honour debt servicing.  The sharp rise of trade deficit in recent months to $11bn. The incumbent govt. should contain fiscal deficit within the range in order to get the dividends of structured reforms and attain political consensuses.

Rationalization of Tax on Bonus Shares:

In 2014-15 Govt. introduced 5% tax on value of bonus shares. The levy instead increasing revenue not only dropped the number of bonus issues but also reduce the revenue significantly. The markets are expecting govt. to do rethink and cut the tax on bonus shares.      

CGT on Disposal of Securities:

Frequent change in CGT regime is discouraging for the growth of Capital Market. Market are willing to pay CGT as introducing in 2010 with subsequently change in rates & holding period. Existing rate of 7.5% for securities regardless of holding period needed to be rationalized. CGT has not only affected local but also Foreign Institutional Portfolio Investment. 4 tiers of holding period proposed and caped at 3 years of holding period. However after 3 years of holding period zero rate will give big boost for long term investment in capital markets.           

CGT collection for foreigners:

As being practiced in most of the countries and even in regional markets foreign investors are not being imposed CGT. In Pakistan Foreign Investors do file returns and pay taxes according to the law of the land. It would give impetus to Foreign Portfolio Investment if Govt. choose to exempt on collection of advance CGT.

Rationalization of tax on Dividends:

The markets are expecting the government to reconsider tax on dividends. This is leading to dual taxation of dividends. Firstly, dividends are a post-tax appropriation. Secondly, the 15% to 20% tax on dividends in the hands of the shareholders is leading to dual taxation. Markets are hoping that this tax needed to be revisited and rationalized.

Lastly, the one thing that markets always expect a boost for small investors. In the last few years lot had been done on the regulatory side however awaiting initiatives for incentives for retail investors. That will be a big boost for market sentiments. After all, markets are substantially about investor sentiments!

SBP Choose to Maintain Key Policy Rate

There has been a great deal of speculation regarding the policy review by the State Bank of Pakistan (SBP). With the recent devaluation, expected inflation hike, all eyes were focused on the view that the SBP Monetary Policy takes on borrowing rates. However SBP held them steady.

·         Inflation:

During the last policy review meeting in Jan this year, the SBP increasing policy rate by 25 basis points at 6.00% on preemptive measure in-order to cope with economic challenges.  It had shifted its policy stance the reason for this move was the risk of inflation. However, the average Consumer Price Index (CPI) inflation was as low as 3.26% for the month of Mar on YoY compared Feb’s 3.80%. Weakening currency likely to sharpen the impact on retail inflation.

·         Vulnerable External Account:

Pakistan’s external debt could jump to $93.3 billion by this June’s 2018 projected level.  CPEC investments could accelerate the build-up of related external payment obligations, adding Pakistan’s capacity to repay could deteriorate at a faster pace, with faster depletion of foreign exchange reserves having adverse effects on economic growth. However recent Rupee depreciation allowing greater exchange rate flexibility on permanent basis may help to contain the external pressure.

·         Domestic Demand Pressure:

Though moving ahead has been good until now, but growing consumer demand are adding domestic pressure.

·         GDP Growth Could be Driver:

The growth likely to happen as agro sector continues to showing positive signs. While the Large Scale Industrial sector is already out performing & showing consistent growth and a turnaround in the capital investment cycle. All this is indicative of higher growth potential in the coming quarters.

Despite the fact that inflation remained controlled & around 4% after the first devaluation back in Dec last. SBP may remain cautious on key rates during the upcoming policy reviews & SBP may not really hesitate to hike rates if the situation actually warranted. 

Understanding the Importance of Stop Loss Order

Investing in Stock Market like in any other business needs one common principle to follow how good you manage your business risk. You need to do your homework before getting into the world of stock investments. No matter how much you analyse the market trends, there is always a risk that the market will show high volatility. In such situations, using a stop loss can help you sail through. With stop loss, you can limit the amount of money you lose on a stock. Stop loss helps to protect your assets.

What Is Stop Loss?

Stop loss is an order placed with the stock broker to buy or sell a stock when it reaches a certain price. A Stop Loss Order is designed to limit a investor’s loss on a position of a Stock. In simple words, the purpose of stop loss is to get you out of the stock position before the price falls further. It indicates maximum loss that a Investor/trader is willing to absorb.

How does Stop Loss Works?

There is no bench mark for using Stop Loss at any level, Its all your trading strategy. However If you are using Online Trading Platform, you may set Stop Loss according to your risk appetite. If you are investing with dealer/trader assistance then may ask your trader to set stop loss order. If you are an active trader, you might place a stop loss at 5% below the current market price or the price at which you bought the shares. Similarly, if you are a long-term investor, you might place the stop loss at 15% or more.  Its all about your trading strategy.       

Importance of Stop Loss:

Having understood the basics of Stop Loss, Its significant how best we utilize this tool and why it’s critical for a trader. Here are the reasons why Stop Loss is very important.

·       

•      Every trader can invest in market only with limited capital, primary aim is to protect your capital. The only measurable tool is Stop Loss to restrict your potential losses.

• ·     Stop Loss infuses discipline in the trading for any investor. One of the key traits of Smart Trader.

• ·       By placing Stop Loss Order on all open orders, you can measure your potential losses & figure out the capital at your risk.

• ·    Stop Loss enables blend of capital. The aim is to keep rolling your capital and compounding your returns on regular basis.

• ·     Stop Loss Order’s are the best defense against Volatility. Stock Market  lived with Volatility as a  default, only way to protect your risk.      

Protecting your investments is a smart way to invest in stock market. If you are not willing to hold your investments for long, then it is a good idea to set stop loss. Stop loss is a great tool if used properly, yet many investors fail to use it. You should think of stop loss like an insurance policy, it costs you nothing but in situations when your call on the market goes wrong, it can protect you and save investments.

At AZEE Securities, we encourage novice traders and investors. With our experienced team’s proven and profitable trading strategies which can help you make better trading and investing decisions.

#PSX   #AZEESECURITIES   #KSE100Index.

What are Penny Stocks?

Investors in Stock Market are familiar with the term “PENNY STOCKS”. Usually in Pakistan Stock Market, Penny Stocks are phrased as Third Tier Stocks or may be Low Cost Stocks. Penny Stocks are the stocks usually trading below the Par Value i.e Rs. 10. Sometimes even stocks having prices less then Rs.20 are also classified as Penny Stocks. Penny stocks or Low priced stocks have the attraction & equally potential of investing small amount by turning into huge sum of profit pretty quickly. But at the same time, same very stocks may lead to wipe-out your whole lot of investment also. For Example it is easy to move stock A from Rs. 6 to Rs.10 almost around 70% of the return. This is just like POL – Pakistan Oil Field stock price moves from Rs.600 to Rs.1000 which is not easy to happen in practical.   

Though penny stocks or low profile stocks have hidden potential to balloon your profits but still remained dangerous investment. Institutional investors avoid usually penny stocks which is why retail investor should also consider before opting.

There is a right way to go about for investing in penny stocks. In Pakistan some of the listed companies started as penny stocks have turn into great success today. Purpose of investments is to make money, so we need to select those penny stocks which are making money. After all, you decided to take high risk and high rewarding penny stocks are good for investment then here are the steps you need to review before consider into your portfolio.

1.    Check that company as a credible business model or otherwise. Companies just moving funds in & out are better to be avoided.

2.    Historic trend of the liquidity of the stock should be considered. As if stock hardly traded in past few months and being witnessed sudden trigger in volumes should be avoided.

3.    Stay tuned to the news & business websites and discussion forums where you are likely to get insight of the company.

4.    Unfold the facts from the market of the company’s tall claims or some ambitious plans. Some analyst or competitors may enlighten you about the true picture of the company.

5.    If you are committing your funds on the basis of DIHAN, in today’s world one can get in touch with company’s management or even PSX - Pakistan Stock Exchange about the facts.  

6.    All penny stocks are not bad, so credibility of the management and the group behind the company also matters.

7.    Never put your all funds in penny stocks even if the stock has great fundamental value. One can commit proportion of the investment for penny stocks and ensure to book profits at regular interval.

          One must remember there is nothing wrong or not all penny stocks are bad, however these stocks are vulnerable and easy to manipulate. They also remained under the radar of regulator in the greater interest retail investor must consider proportion of portfolio for penny stocks with caution and avoid exposing all liquidity in the process.      

#AZEESECURITIES    #PSX     #ONLINETRADINGPAKISTAN