Stocks to remain under policy rate shock

November 27, 2022

Pakistan stocks closed positive during the outgoing week with expectations of range-bound activity next week, as the market would likely absorb the shock of a 100bps surprise increase in the monetary policy, traders said.

The State Bank of Pakistan (SBP) hiked the policy rate by 100bps to 16.0 percent. “The move was against the broader market consensus, which expected the central bank to keep policy rates unchanged. The SBP based its decision on recent inflationary concerns as CPI averaged 25.5 percent in 4MFY23,” said a report of KASB Pakistan Research.

“We expect the market to come under pressure given that the majority expected the central bank to keep interest rates unchanged,” said the report. “We believe the SBP has prioritised inflation control to ensure the sustainability of long-term economic growth. In case inflationary pressures persist given the flood-driven supply shocks and expectations of a sharp hike in gas prices, additional hikein the policy rate is a definite possibility.”

Arif Habib Ltd, a brokerage house, said, “Dollar inflow from AIIB and the repayment of the Sukuk (fully funded as per SBP) next week are expected to support market momentum and increase investor confidence.”

In addition, the prime minister’s visit to Turkey to enhance bilateral cooperation might bring some positive momentum in the market, said the report.

The market commenced on a positive note this week. However, uncertainty prevailed throughout due to political concerns. In addition, during the week, rupee depreciated against the greenback, dropping by Re0.28 0.13 percent WoW and settling at Rs223.94.

In addition, the current account deficit declined by 68 percent YoY, primarily due to a decline in imports which went down by 23 percent YoY. The market closed at 42,937 points, gaining 206 points (up 0.48 percent) WoW. Average volumes clocked in at 160 million shares (down 14 percent WoW) while the average value traded settled at $25 million (down 10 percent WoW).

Foreign buying clocked in at $1.11 million compared to a net buying of $2.06 million last week. Major buying was witnessed in technology and communications ($0.78 million), all other sectors ($0.74 million), and E&P ($0.24 million). On the local front, selling was reported by mutual funds ($2.82 million) followed by insurance ($1.42 million).

Sector-wise positive contributions came from technology and communications (202 points), fertilisers (114 points), E&Ps (26 points), banks (26 points) and miscellaneous (17 points). Scrip-wise positive contributors were Systems Limited (147 points), Engro (92 points), TRG (53 points), Dawood Hercules (36 points), and Indus Motors (27 points).

Sectors that contributed negatively included power (31 points), cement (20 points), and glass (14 points). Meanwhile, scrip-wise negative contributions came from Hubco (120 points), Millat Tractors (28 points), Fatima Fertilizer (14 points), Lucky Cement (11 points), and Ghani Glass (11 points).

Analyst Nabeel Haroon of Topline Securities said lacklustre activity was observed during the outgoing week. “This lack of participation can be attributed to delay in talks between Pakistan and IMF, upcoming Eurobond payment in the first week of December, army chief appointment and monetary policy announcement,” he said.

Another major development during the week remained MSCI November-2022 semi-annual index review (SAIR) for FM100 Index where Pakistan’s weight increased to 3.03 percent and 4 scrips got added to the index namely Lucky Cement, Systems Limited, Pakistan Oilfields and TRG, these changes would be effective as of November 30, 2022.