Investors eye policy rate, inflation with stocks out of the hole

Pakistan stocks' investors will be watching global oil prices and the central bank policy stance for a direction next week but the equities are also showing some signs that selling pressure may be reaching an end, dealers said on Saturday.

Factors this coming week that may provide support for Pakistan stocks include smooth settlement of futures contracts, slowdown in foreign selling and a status quo in the interest rate regime.

"The market would remain range-bound to positive, and not in negative (zone)," said Muzammil Aslam at the Invest and Finance Securities.

The Pakistan Stock Exchange's (PSX) benchmark KSE 100-share index shed 203.85 points, or 0.61 percent, during the last week to close at 32,876.55 points.

Average daily volumes fell 32 percent to 112.9 million shares. Average daily value declined 33 percent to Rs5.3 billion ($50.6 million). Market capitalisation dropped Rs78 billion to Rs6.80 trillion.

Aslam said a successful rollover of the March futures contract has slowed down the selling pressure in the market."

"We rarely see selling at the start of a month and this scenario would keep investors in good mood and provide a room for fresh buying," he added.

Analysts said the selling from foreign portfolio managers has also declined in the week. “Investors see it as a positive factor when they take decisions to buy and/or sell at the local bourse next week,” an analyst said.

Foreigners sold shares (net) worth $2.31 million last week. Net selling was seen in the oil and gas exploration and chemicals sectors. Net buying of $2.8 million was witnessed in the cement sector.

Industrial metals and mining and beverages were two of the few gainers on a sector level last week as they increased 3.5 percent and 2.6 percent, respectively. Automobile and parts and commercial banks fell four percent and 3.4 percent, respectively.

Punjab Oil, Soneri Bank, PakGen Power Limited, EFU Life Assurance and Lalpir Power Limited were the major gainers, while EFU General Insurance, Bank Al-Habib Limited, Pak Suzuki Motors, Habib Metro Bank, and Indus Motors were the major losers in the benchmark index last week.

Analyst Ahsan Mehanti at Arif Habib Corporation said the likely status quo in the interest rate will also convince investors to take fresh positions in leveraged stocks, including cement, fertiliser and independent power producers.

However, stable interest rate may keep banking stocks under pressure in the week ahead. “Besides, maturity of the long-term Pakistan Investment Bonds in the near future and low banking spreads may put further pressure on the banking stocks going forward,” Mehanti said.

He said the second last tranche of $502 from the International Monetary Fund due next week under its Extended Fund Facility and signing of multiple pacts between Pakistan and Iran during the recent visit of President Hassan Rouhani will definitely cheer up the market in the initial days of the week.

KASB Securities, in a market note, said the investors will also closely track inflation figures for the month of March. "Moreover, clarity on FTA (free trade agreement) with Iran (particularly on import of cement) and start of result season will likely boost the sentiment of the market, going forward."

Arif Habib Limited said key risks to the index may emanate from the foreign outflows, unpredictable commodity prices and sudden depreciation of rupee value. "We advise investors to select stocks with robust fundamentals."