Stocks to hang around economic numbers, IMF demands

KARACHI: Stocks closed higher during the outgoing week on expectations of financial support from friendly countries and continuation of the IMF programme, with next week expected to hang around the Fund’s demands, traders said.

Benchmark KSE100 index gained almost 751 points during the week as investors' confidence improved reflected by a 65 percent week-on-week increase in volumes, said a report of KASB Pakistan Research.

During the week, virtual talks with the IMF continued and the State Bank of Pakistan decided to raise the markup rate for exporters to reduce subsidies. Moreover, the government was also contemplating introducing new taxation measures via a mini-budget to revive the IMF programme, it said.

“This is in light of the country’s alarmingly low reserves and upcoming repayment of around $1.0 billion in January 2023,” it added.

As per the first draft, a flood levy on imports and windfall income tax of banks would be introduced to bridge the revenue shortfall. “The finance minister has also committed to settling gas circular debt which we believe would come through a hike in power tariff.

During these testing times, we recommend the fertiliser sector along with the oil and gas sector that could benefit from the settlement of the circular debt. Cyclicals should be avoided,” suggested the report.

The upcoming week would look at the numbers of December and year 2022. December 2022 inflation would likely be recorded at 25 percent, whereas the likelihood of a hike in the price of diesel could happen via the imposition of a petroleum levy.

Trade deficit numbers would also be revealed during the week, while off-take of oil marketing companies is expected to increase on a sequential basis, the report added. Presenting a monthly analysis of the stock market, analyst Nabeel Haroon at Topline Securities said the index declined by 4.6 percent month-on-month on the back of 100bps hike in SBP’s interest rate to 16 percent, delay in IMF programme, and dwindling foreign reserves.

“Apart from this, high inflationary environment where investors expect SBP to further increase the policy rate by at least 100 basis point in next monetary policy on January 23 and upcoming international debt repayments amid low reserves also weighed down on investor sentiment,” Haroon added.

Investors preferred to remain on the sidelines, as average traded volume and value for the month of December 2022 stood at 181 million shares and Rs5 billion respectively. On flows end, during the outgoing month banks and companies purchased equities worth $38 million and $15 million respectively. On the flip side, foreign corporate and mutual funds sold equities worth $16.20 million and $14.79 million respectively till Thursday’s close.

During the outgoing week, SBP’s reserves declined further, leaving an import cover of 1.1x, virtual talks with IMF continued for the ninth review, and SBP raised markup rates (LTFF/EFS) for exporters and allowed the import of essential and energy products.

Brokerage Arif Habib Ltd said while nervousness ruled almost all asset classes in 2022: stock market, bond yields, and the currency, “we believe that for the past few years, the KSE-100 index returns have not caught up with valuations.”

Giving an annual analysis, Arif Habib Ltd said, “The equity bourse posted an exceptionally dismal performance during CY22, eroding positive returns realised by the market in the past three years.”

While global investors sided with caution, market participants of the domestic bourse also took account of the political impasse in Pakistan, it added.