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Sunday May 28, 2023

Stocks to take cue from IMF 9th review talks

February 05, 2023

Pakistan stocks closed flat during the outgoing week with expectations that the market would take cue from the talks held between the government and the International Monetary Fund (IMF) next week, traders said.

“The market participants will continue to closely monitor developments on IMF talks with Pakistan,” said Brokerage Arif Habib Ltd. “Any positive outcome on that front is likely to bring back bulls to the market. However, news flow regarding tough conditions may keep the index range-bound.”

The market remained range-bound during the week. The unfortunate incident in Peshawar, which caused concerns about the overall security situation in the country, took a toll on the index. However, the commencement of talks between IMF and government for the 9th review in Islamabad brought back the bulls (which took the index up by 826 points during the intraday on Tuesday), it reported.

On the economic front, PBS data unveiled during the week depicted a reduction in trade deficit by 22.7 percent YoY and 6.9 percent MoM. Meanwhile, inflation for the month of January 2023 reached 27.55 percent (the highest since 1975), which put pressure on the index.

Moreover, rupee depreciated by 13.58 or 5.32 percent WoW against dollar, closing the week at Rs276.58 (a historic low level).

The market closed at 40,471 points, up 21 points or 0.05 percent WoW. Average volumes arrived at 135 million shares (down 38 percent WoW) while the average value traded settled at $23 million (down 32 percent WoW).

Foreign buying continued this week, clocking in at $0.9 million compared to a net buy of $2.8 million last week. Major buying was witnessed in fertilisers ($1.5 million) and E&Ps ($1.4 million). On the local front, selling was reported by insurance ($9.7 million) followed by mutual funds ($1.6 million).

Sector-wise positive contributions came from power generation and distribution (101 points), fertiliser (79 points), automobile assembler (38 points), cement (33 points), and pharmaceuticals (29 points). Scrip-wise positive contributors were Hubco (98 points), Engro (88 points), Mari Petroleum (69 points), Engry Ferilizer (48 points), and Lucky Cement (47 points).

The sectors which contributed negatively were miscellaneous (245 points), commercial banks (39 points), and technology and communication (35 points). Meanwhile, scrip-wise negative contributions came from Pakistan Services (249 points), Pakistan Petroleum Limited (72 points), Habib Bank Limited (60 points), and Fauji Fertilizer Company (57 points).

KASB Pakistan Research said overall, volumes decreased 40 percent WoW as investors await clarity on structural reforms. Trade deficit shrank 23 percent YoY accredited to import restrictions imposed by SBP in January 23. This is in view of an alarmingly low reserve level that dropped to $3.1 billion, leaving an import cover of 18 days only.

“Consequently, we expect the government to implement structural adjustments including energy tariff hikes and fiscal improvement in the upcoming week to unlock financial inflows,” it suggested. “We recommend defensive stocks due to the delay in the conclusion of the ninth review. However, E&P sector may see a rally upon finalisation of the circular debt roadmap.”

Analyst Nabeel Haroon at Topline Securities said the market largely remained range-bound during the week with low volumes, as investors preferred to remain on the sidelines as they kept a close eye on ongoing negotiations with IMF after the Fund’s mission arrival in Pakistan.

In addition to that, PSO directed to charter PNSC fleet for Pakistan Oilfields import, the government offered its SOE stakes to two UAE firms, Indus Motor halted production for two weeks on inventory shortages, and textile exports dropped 12 percent.