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August 26,2018

Equity trading likely to lose momentum in rollover week

Danyal Haris

Equity trading is likely to remain dull in the next rollover week, while investors would also keep track of developments related to external flows to take fresh positions, analysts said.

“Activity is expected to remain low on account of future rollover in the upcoming week,” brokerage BMA Capital Management said.

“The market shall keenly track developments on materialisation of much-hyped external flows along with any concrete action plan to resolve rising current account and fiscal deficits.”

A shortened trading week due to Eid holidays saw a lacklustre show during the outgoing week, as investors remained on the sidelines ahead of an expected policy action by the new government to tackle twin deficits and declining foreign exchange reserves. The KSE-100 Index of PSX was slightly positive during the week and gained 0.33 percent or 141 points week on week to close at 42,588. Positive news flow on possibility of foreign aid/loans from regional allies including China and Saudi Arabia, however, appeared during the week to placate investors.

Fertilisers outperformed other shares partly because investors are expecting the new government to focus its attention on the textile and agriculture sectors. Earnings for the quarter for fertilisers also contributed to the positive sentiment. Analysts said fertiliser stocks were in the buying chart and closed on the positive zone owing to reports of possible increase in urea prices. Foreigners continued to remain net sellers with an outflow of $3.45 million, mainly concentrated in cement, exploration and petroleum sectors. Amongst local investors, insurance and mutual funds provided support to the market amid thin volumes with a cumulative liquidity of $5.62 million. Companies, bank/development finance institutions sold stocks worth $3.02 million during the week. Analysts said Prime Minister Imran Khan’s inaugural speech on 19 August that highlighted broad context of his action plan in order to address key economic and social challenges failed to ignite investors’ sentiment. Moody’s, in a report, highlighted challenges being faced on external and fiscal sides with suggestion surfacing that appreciation in the dollar to send shivering signals to economic managers.

Analysts said the new economic team might take tough decision to control the rising current account deficit by limiting imports. Dollar appreciation would increase interest rate, which would spike inflation and might crimp earnings of the import-dependent companies.

Major news that affected the market during the preceding week were circular debt reaching Rs1.14 trillion and its expected servicing through tariff hikes, external debt repayment obligation reaching $9.3 billion and current account deficit widening 16 percent to $2.2 billion dollars in July. “All developments are worrisome with bumpy road ahead for the new government,” an analyst said, requesting anonymity.


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