Stock brokers saw a sharp rise in the Pakistan Stock Exchange (PSX) as bullish speculators participated in the exchange. The KSE-100 which is the benchmark index of the PSX recorded a 3,000-point recovery in the index after two full days of profit taking.

 

Earlier in the week, the KSE-100 recorded the largest single day decline in its history of 4,795 points as panic selling gripped investors. Investors are growing weary of the unprecedented level of volatility in the exchange.

 

Experts are predicting that the profit taking behavior could have been due to a recent bill that was proposed in Islamabad earlier this week. The proposed bill seeks to impose restrictions on the trading of securities by non-filers and tax evaders.

 

While this bill has its merits and will be invaluable in the Islamabad’s journey to curb tax evasion, it is impacting businesses significantly. While experts were initially highlighting how the bill could be detrimental for business growth, it seems like it is not the case.

 

It is possible that non-filers sold off their shares in order for a tax paying member of their household to purchase them instead. Such behaviors are common are probably what led to the sharp decline and rise in the PSX as the bill would have frozen non-filer trading activities.

 

If a significant amount of non-filers end up permanently pulling their funds out of the exchange before the restrictions are levied, the market will suffer. The downward trend that took charge of the market earlier could return as currently, investors have lost some of their trust in the market. This is likely to fuel further profit taking.

 

In the event of a persisting slump in the PSX, firms will not be able to raise funds easily. They will now have to issue more shares to gather the same amount of money now. This is because earlier, share values tanked with some companies such as Mari Petroleum losing as much as 10 percent of their value.

 

The fall in share prices and the high fluctuations in the exchange are likely to cause a trend in company executives to favor the use of debt for operations instead of the sale of more equity. However, this will reduce dividend payments to shareholders as cash inflows from projects will then be used to finance interest payments on loans instead and lower dividends might reduce share values further.

 

However, the low stock prices paved way for speculators as they saw an opportunity to make a quick profit due to market volatility. For now, experts have their eyes set on the PSX and are wondering if it can continue to exhibit steady growth rates as it has in the past few months or if the surge in volatility has just begun.