Stocks to take cue from political, economic developments

Stocks ended the week on a downward trajectory, breaking a streak of six consecutive positive weekly closings, as market sentiment was dampened by the political turmoil following the arrest of former Prime Minister Imran Khan.

Analysts said the market is anticipated to remain sensitive to political and economic factors, particularly the IMF bailout package uncertainty.

The stock market closed at 41,488 points, down 754 points (down by 1.8 percent) week-on-week (WoW). Average volumes arrived at 133.5 million shares (down by 43 percent WoW) while the average value traded settled at $14.1 million (down by 50 percent WoW).

“The market sentiment is heavily influenced by developments on the political front,” said a brokerage Arif Habib Ltd in its report. “Furthermore, recent discussions at the IMF conference highlighted the need for significant additional financing to successfully complete the long-delayed ninth review of Pakistan's IMF bailout package. Therefore, any positive developments concerning the IMF would have a positive impact on the market sentiment and the overall performance of the index.”

The market commenced on a negative note on Monday as Fitch ratings revealed that Pakistan was facing a substantial debt payment of $3.7 billion in the May-Jun’23 period. Additionally, Pakistan was not on the agenda of the International Monetary Fund - IMF meetings, which dampened hopes for the resumption of the Extended Fund Facility (EFF) programme with the IMF, it reported.

Furthermore, there were significant political developments during the week. The arrest of former prime minister Imran Khan sparked protests across the country, leading to a period of political instability. However, as the week progressed, the political situation relatively eased off. Foreigner buying was witnessed during this week, clocking in at $1.1 million compared to a net sell of $6.1 million last week. Major buying was witnessed in banks ($0.8 million) and food & personal care ($0.3 million). On the local front, selling was reported by companies ($1.8 million) followed by mutual funds ($1.5 million).

Sector-wise negative contributions came from oil and gas exploration companies (220 points), commercial banks (212 points), technology & communication (164 points), fertilizer (137 points), and cement (83 points). Scrip-wise negative contributors were SYS (110 points), HBL (105 points), OGDC (103 points), PPL (76 points), and UBL (69 points).

The sectors which contributed positively were tobacco (2.2 points), and modarabas (0.3 points). Scrip-wise positive contributions came from HMB (17 points), GLAXO (6 points), MUREB (4.6 points), FFC (2.5 points), and INDU (2.3 points).

Muhammad Waqas Ghani at JS Research said investors chose to stay on the sidelines as a result of the former premier's arrest and the subsequent nationwide violent protests. On the economic front, budget deficit data showed a contraction to 1.7 percent of GDP during 3QFY23. In absolute terms, the deficit expanded 17 percent YoY for 3QFY23. Deterioration was broadly contributed by a 52 percent YoY increase in markup expenses. Likewise, remittances’ data for 10MFY23 showed a 13 percent YoY decline.

Pak rupee faced steep devaluation on Wednesday and Thursday and lost 5 percent (Rs14) taking PKR/USD to an all-time low of 298.93. The currency then recovered to settle at a PKR/USD of 285.08 on Friday over expectations that the political climate would improve in the wake of the Supreme Court's ruling declaring Imran Khan's detention to be illegal. SBP reserves remained largely stable declining by US$74 million to US$4.4bn translating into an import cover of around 1 month.

Nabeel Haroon, an analyst at Topline Securities, said it was the first negative weekly closing after 6 consecutive positive weekly closings. “This negativity can be attributed to political noise when Imran Khan (PTI chief) was arrested by NAB on account of corruption charges which was followed by demonstrations in various cities.” Delays in the IMF programme and media rumours regarding IMF demand for further policy rate hikes also weighed down investor sentiment.