The local bourse witnessed its lowest level in the current year after the benchmark KSE-100 index shed 1,010 points to touch 39,256 points.
The accountability court's July 6 verdict that sentenced former prime minister Nawaz Sharif to eleven years in prison along with a fine of £8 million fine (Rs1.3 billion) in the Avenfield properties reference, has stirred investors. Nawaz's daughter Maryam was also sentenced to eight years with a £2 million fine (Rs335 million), while his son-in-law Captain (retired) Safdar Awan received a one-year prison sentence.
According to Yawar-uz-Zaman, who is the Vice President of the Research Department at a local brokerage house Shajar Capital, persistent political uncertainty has created an environment of risk-averse trading.
"Political uncertainty and foreign selling, which has persisted in the market for a while now, have driven down the confidence of local participants,".
He further observed that local investors are waiting for a further dip in the market before they resume buying.
The cement sector took a significant hit during the first-half of the intra-day trading. Investors seemed to be unwilling to move away from their selling positions. With the sector's demand directly linked to the government's Public Sector Development Programme (PSDP), investors' lacklustre interest in the sector seemed to be driven from a cut in the programme by the caretaker government.
According to Zaman, the overall sentiment will remain depressed till the new government takes control. "Investors won’t take new positions till the political setup shows signs of certainty," he noted.
Samiullah Tariq — who serves as a Director of the Research Department at Arif Habib Corporation — also reiterated that political uncertainty was the primary factor in the bearish trend that took over the market during the day's trading.
"The money laundering inquiry that has been recently launched has also affected the market, especially after the presidents of a few banks have been placed on the Exit Control List (ECL)," he said.
The president of a local bank, Hussain Lawai, was arrested by the Federal Investigation Agency (FIA) on Friday in connection with alleged money laundering worth billions of rupees. The investigation agency is probing a potential money-laundering scandal of Rs35 billion implicating a top political leader along with his businessman and banker friends.
"With Nawaz Sharif expected to return to the country on July 13, the interest of local investors is likely to return in the next week," Tariq said.
Responding to a question about the selling trend in the cement sector, the research professional noted that the sector's earnings have had a past trend of taking a hit with the country's macro outlook.
"Cement along with the auto sector has underperformed in the last year, and the trend is likely to continue till the polls are held," he said.