MSCI inclusion to support stocks, but near-term correction likely

Stocks showed some profit-taking and correction last week, with the market likely to see growth in the coming sessions amid Pakistan’s increased weight in the MSCI index, traders said.

“In the upcoming week, bullish sentiment is expected to gain momentum with foreigners expected to show keen interest in the local bourse amid Pakistan’s increased weight in the MSCI index,” said brokerage Arif Habib Ltd. “In addition, certain sectors and scrips are anticipated to stay in the limelight given expectations of robust results.”

The local bourse experienced a mixed trend during the outgoing week. The gas circular debt resolution through the dividend plough-back scheme and approval of the refinery policy kept the market sentiments positive.

Moreover, during the outgoing week, there was also an upward revision in Pakistan’s weight in the MSCI FM index, from approximately 0.6 percent to 2.7 percent.

In addition, last week central bank’s reserves decreased by $110 million reaching $8 billion. Furthermore, rupee depreciated during the week against USD, closing at Rs288.49, losing Rs1.53 or 0.5 percent WoW.

Overall, the market closed at 48,424 points level, declining by 161 points (-0.3 percent) WoW. Average volumes arrived at 344 million shares (down by 30 percent WoW) while the average value traded settled at $50 million (down by 17 percent WoW).

Foreign buying continued during the week, clocking in at $2.9 million compared to a net buy of $5.3 million last week. Major buying was witnessed in commercial banks ($1.8 million) and exploration and production ($1.5 million). On the local front, selling was reported by banks / DFIs ($6.9 million) followed by mutual funds ($5.9 million).

Sector-wise negative contributions came from technology (157 points), E&Ps (116 points), oil marketing companies (87 points), refinery (73 points), and chemical (56 points). Scrip-wise negative contributors were Systems Limited (92 points), Oil and Gas Development Company (77 points), Pakistan Petroleum Limited (66 points), Pakistan State Oil (53 points), and TRG (51 points).

Sectors that contributed positively to the market were fertiliser (264 points) and banks (153 points). Scrip-wise positive contributions came from Dawood Hercules Corporation (181 points), United Bank Limited (96 points), Engri (93 points), MCB Bank (58 points), and Lucky Cement (38 points).

Analyst Nabeel Haroon at Topline Securities said the week started on a weak note as investors preferred to book profit before the coalition government’s term came to an end. However, some recovery was observed later during the week on news that the IMF has granted approval for a ground-breaking dividend plug-in back scheme and on MSCI Quarterly Index review. In a surprise move, MSCI added 15 constituents to the MSCI Frontier index.

Analyst Muhammad Waqas Ghani at JS Research said the week started on a dull note, but investor optimism picked up as it progressed. In the realm of news, the potential postponement of elections added to investor apprehension.

During the week, the parliament underwent dissolution, as the PM took steps to transition authority to an interim government for upcoming elections. However, discussions for caretaker premier failed to yield a unanimous agreement on any candidate.

On the other hand, in a noteworthy development poised to alleviate economic concerns, the IMF is reportedly open to consider collaboration with an extended caretaker administration to conclude the ongoing SBA.

On the sectoral front, the Cabinet Committee on Energy finally approved the policy to upgrade local refineries and produce cleaner fuels. Furthermore, the government revisited the gas sector debt solution with a reduced Rs414 billion plan (previously Rs543 billion). The new approach involves gradual cash injection and dividends.