Rocky stock market faces SBP test with eyes on tightening plans

Pakistan stocks shed heavily during the outgoing week amid political and economic uncertainty, with next week’s market likely to hang on to the central bank’s monetary policy statement and resumption of the IMF programme, traders said.

“A key event in the immediate term is the expected resumption of the IMF programme, which should propel the market as it would imply inflows from other bilateral and multilateral partners as well,” said Brokerage Arif Habib Ltd in its weekly market analysis. “While we also highlight the upcoming monetary policy announcement which is due on January 23, 2023, which can keep leveraged sectors under the limelight.”

The week kicked-off on a negative note due to political chaos in the country as the Punjab assembly was dissolved over the weekend and subsequent dissolution of the Khyber Pakhtunkhwa assembly was on the cards.

“This uncertainty persisted throughout the week as resignations of members of a political party were accepted in the National Assembly and clarity was awaited on the confidence motion against Prime Minister,” it said.

On the economic front, remittance numbers released by the State Bank of Pakistan (SBP) depicted a decline of 19 percent YoY in December 2022, compared to the same period the previous year.

However, one positive development during the week was a slight jump in the SBP’s reserves which were up $258 million WoW, reaching $4.6 billion. Moreover, rupee depreciated by 1.52 0.66 percent WoW against dollar, closing the week at 229.67.

The index closed at 38,408 points, shedding 1,915 points (down 4.8 percent) WoW. Average volumes clocked in at 143 million shares (down 22 percent WoW) while the average value traded settled at $21.7 million (down 20 percent WoW).

Foreign buying continued during this week, arriving at $4.9 million compared to a net buy of $1.2 million last week. Major buying was witnessed in exploration and production ($1.4 million) and commercial banks ($1.2 million). On the local front, selling was reported by banks/DFIs ($4.1 million) followed by individuals ($3.0 million).

Sector-wise negative contributions came from commercial banks (356.5 points), cements (287.7 points), oil and gas exploration companies (224.9 points), fertilisers (166.5 points) and technology (163.9 points). Scrip-wise negative contributors were Lucky Cement (133.3 points), Engro (103.9 points), Pakistan State Oil (92.3 points), Mari Petroleum (80.0 points) and Bank Al Habib (77.9 points).

The sector which contributed positively was real estate investment trust (0.6 points). Meanwhile, scrip-wise positive contributions came from EFU General Insurance (3.2 points), Fauji Fertilizer Company (1.4 points), Dolmen City REIT (0.6 points), and Colgate (0.2 points).

For the next week, Arif Habib Ltd said, “Our preferred stocks are OGDC, PPL, MARI, MCB, FABL, MEBL, BAFL, LUCK, MLCF, FCCL, ENGRO, FFC, HUBC, PSO, SNGP and HU MILLIONL.”

Nabeel Haroon at Topline Securities said the index declined by 4.8 percent on a WoW basis. “This decline can be attributed to increasing investors’ concern on dwindling foreign reserves amid stalled IMF programme and upcoming monetary policy where further increase in policy rate is expected.”

Other developments during the outgoing week were: LSM number for the month of November 2022 declining by 5.49 percent on YoY basis, the trade deficit for December 2022 clocking in at $2.84 billion (up 2 percent on a MoM basis) and C/A deficit for December 2022 coming in at $400 million (up 59 percent on MoM basis).

In addition to that, Pakistan got a lifeline rollover of a $2 billion worth of loan from UAE; fuel prices were kept unchanged amid speculation; and a Rs200 billion mini-budget was on cards to appease the IMF.