Investors eye Pakistan-IMF talks with hopes for tranche approval

Pakistan stocks closed up during the outgoing week with expectations of continuing the momentum in the week ahead on positive news related to Pakistan-IMF talks regarding the 9th review.

“After the positive news appeared that the government and the IMF are likely to commence talks, we expect the market to remain positive next week,” said Arif Habib Ltd. “Furthermore, any encouraging news coming from Saudi Arabia or from any friendly countries is expected to trigger positive momentum.”

In the outgoing week, the market started out sluggish as inflation increased to 24.5 percent YoY in December 2022. Furthermore, the government announced that markets and shopping areas would close by 8:30 pm as this will save the government approximately Rs62 billion.

Additionally, the trade deficit in the last month dipped by 41 percent to $2.86 billion YoY but increased by 2 percent MoM, which was due to a decline of 3.64 percent in exports while imports inched up by 0.41 percent.

Moreover, foreign exchange reserves fell by another $245 million to $5.57 billion, touching the lowest level since April 2014. In addition, the rupee depreciated by Re0.7 or 0.31 percent WoW against the dollar, closing the week at 227.14.

Towards the end of the week, the market started to rally as it appeared likely that the IMF and government of Pakistan would commence negotiations to revive the stalled programme.

The index closed at 41,007 points, gaining 587 points (up 1.45 percent) WoW. Average volumes clocked in at 176.0 million shares (down 17.9 percent WoW) while the average value traded settled at $23.3 million (down 22.7 percent WoW).

Foreign buying was witnessed during this week, clocking in at $0.3 million compared to a net sell of $16.6 million last week. Major selling was witnessed in commercial banks ($0.5 million) and all other sectors ($0.3 million). On the local front, buying was reported by companies ($3.2 million) followed by brokers ($0.9 million).

Sector-wise positive contributions came from fertilisers (336 points), E&Ps (246 points), technology (139 points), miscellaneous (133 points) and oil marketing companies (47 points). Scrip-wise positive contributors were Engro (191 points), Pakistan Petroleum (140 points), Pakistan Services (124 points), TRG (79 points) and Pakistan Oilfields (74 points).

The sectors which contributed negatively were cement (126 points), power (62 points), auto assembler (50 points), and textile composite (30 points). Meanwhile, scrip-wise negative contributions came from Hubco (44 points), Lucky Cement (40 points), Meezan Bank (37 points), Nestle (28 points) and K-Electric (25 points).

KASB Pakistan Research said the country has to pay commercial loans of around $1.0 billion in the next week. “We think that this would be rolled over in light of the country’s alarmingly low reserves,” it reported. “During these testing times, we recommend oil and gas and refinery sectors that could benefit from the settlement of circular debt and approval of refinery policy. Cyclicals including textile, cement, steel and autos should be avoided.”

Nabeel Haroon at Topline Securities said the optimism in the market was on account of expectations that there might be some positive development on the gas circular debt side as the government has been showing interest in curtailing the circular debt in line with the IMF’s demand.

On the other hand, Millat Tractors stopped production due to a decline in tractor sales, Pak Suzuki extended the closure of its plant for another week due to constraints in the import of raw materials while urea price was likely to increase as Agritech halted its production.