Index likely to trim further on monetary policy announcement

The capital market remained under selling pressure during the outgoing week, while it has also been forecasted that the index might trim further on early announcement of the monetary policy with the general perception that the central bank would likely increase the rate.

During the outgoing week, the benchmark index went down 1.5 percent losing 518 points, to close around 33,672 points level.

Trading activity in benchmark KSE-100 shares index remained immensely dull, as average volumes during the week clocked around 51 million shares. It was worth noting that the volumes in the outgoing week were lowest in the last seven years (last witnessed 28 million shares in January 2012).

An analyst from Topline Securities said investors remained on the sidelines primarily due to uncertainty amongst participants on the market support fund after the ceiling imposed by the International Monetary Fund (IMF) on government guarantees. Also, the other factor that kept investors away from the market was a possible hike in the policy rate in the upcoming Monetary Policy meeting on July 16, 2019, he added.

An analyst from Habib Metro-Finance said the lacklustre attitude prevailed amid bleak near-term macroeconomic outlook following release of IMF staff report. Additionally, apprehensions with regards to issue of Sukuk bonds for circular debt resolution kept the momentum suppressed.

With SBP announcing the date for monetary policy on the last day of the week, the investor sentiment further deteriorated, he said.

Pakistan Automotive Manufacturers Association (PAMA) has released the official volumes data of automobile sales for the month of June 2019, in which overall car sales declined by meagre two percent when compared to May 2019. However, the cumulative car sales for FY19 displayed a cut of eight percent on year on year basis.

On an individual basis, Indus Motors outperformed within its peers by displaying a growth of 13 percent on month and month basis. In contrast, Honda and Suzuki registered a drop of 13 percent and 5 percent on month on month basis respectively. This led to depress volumes and some further downward correction in share prices.

Based on National Clearing Company Private Limited (NCCPL) data, foreigners remained net buyers amounting to $5.9 million. On the local’s side, mutual funds remained net sellers of $5.3 million, respectively.

Sector wise data suggests that commercial banks eroded the highest points (81) from the index followed by E&P companies which contributed 77 points negatively. However, fertiliser sector added 37 points to index.

“We expect the market to remain range-bound next week,” said an analyst from Arif Habib Limited. “Investors are expected to have a cautious stance keeping in view the monetary policy announcement on July 16, 2019.”

Arif Habib expects a 100 bps rate hike in view of aggravating inflationary pressure, he said.

An analyst from Habib Metro-Finance said the SBP was scheduled to announce monetary policy statement on July 16, wherein, “we expect the policy rates to increase in the range of 50-100bps which will further dampen the earnings of debt laden companies, while the market is expected to remain listless and shoddy in near-term”. Therefore, staying on the sidelines with ample liquidity for value hunting in blue-chips was the recommended strategy, he added.