Politics to keep stocks on edge

Despite of a positive opening this week, stocks closed down due to a decline in forex reserves and an increase in political noise with expectations that the market would remain under political pressure next week.

“The equity bourse is expected to remain range-bound in the upcoming week as market participants will remain cautious due to the political noise in the country,” said Arif Habib Ltd. “Furthermore, any positive news coming from friendly countries or IMF 9th review will benefit the market.”

The week commenced on a positive note with news of progress on circular debt. Additionally, the market remained in the green zone since Pakistan secured over $10 billion in pledges from international financial institutions and the UAE agreed to lend $1 billion to Pakistan and roll over an existing $2 billion loan.

Moreover, foreign exchange reserves fell another $1.2 billion to $4.3 billion, the lowest level of SBP-held reserves since February 2014. The large drop in forex reserves was due to external debt repayment. In addition, rupee depreciated by 1.01 | 0.4 percent WoW against dollar, closing the week at 228.14.

The index closed at 40,323 points, shedding 684 points (down 1.7 percent WoW). Average volumes clocked in at 183 million shares (up 4 percent WoW) while the average value traded settled at $27 million (up 16 percent WoW).

Foreign buying continued during this week, arriving at $1.2 million compared to a net buy of $0.3 million last week. Major buying was witnessed in exploration and production ($0.7 million) and all other sectors ($0.6 million). On the local front, selling was reported by mutual funds ($4.7 million) followed by banks/DFIs ($4.5 million).

Sector-wise negative contributions came from commercial banks (222 points), fertilisers (132 points), technology and communication (132 points), pharmaceuticals (59 points) and oil and gas exploration companies (35 points). Scrip-wise negative contributors were TRG (107 points), Engro (55 points), Bank Al Habib (54 points), Meezan Bank (37 points) and MCB (33 points).

The sectors which contributed positively were miscellaneous (68 points), automobile assemblers (39 points), insurance (6 points), automobile parts and accessories (3 points) and paper and board (3 points). Meanwhile, scrip-wise positive contributions came from Pakistan Services (73 points), Millat Tractors (54 points), Lotte Chemical (15 points), Nestle (15 points) and Javedan Corporation (7 points).

KASB Pakistan Research said during the week, the country received commitments worth $10.5 billion from international donors in the aftermath of the floods. Almost 90 percent of these are project loans that would be disbursed in the next three years. “Timely disbursement of funds would provide some respite to alarmingly low country reserves,” it reported.

Notably, international coal prices softened to $170/MT from a high of $185/MT in the previous week. On the other hand, international oil prices rose by more than 5 percent in anticipation of higher demand from China.

“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,” it suggested.

Nabeel Haroon at Topline Securities said the decline in the market can be attributed to an increase in political noise and dwindling foreign reserves.

On the other hand, Saudi Fund for Development and Pakistan signed a new agreement to finance oil derivatives worth $1 billion to Pakistan and the remittance number for the month of December 2022 clocked in at $2 billion (the lowest since May 2020).