Stocks fall for second week on political woes, inflation; outlook stable

Benchmark stock index fell for the second consecutive week as political uncertainty and high inflation weighed on investor sentiment. The market is expected to remain stable in the coming week following the establishment of the caretaker cabinet, traders said.

"Following the establishment of a caretaker cabinet and the ensuing clarity in the interim governance arrangement, we anticipate a forthcoming week of market stability," said brokerage Arif Habib Ltd. "However, some specific sectors and stocks are poised to attract focus, driven by the expectation of robust financial performance. This anticipation could potentially stimulate a positive market momentum."

In the outgoing week, the market remained range-bound due to various developments on the political and economic front. Notably, there was a transition in governance as an interim caretaker setup assumed control.

Additionally, the market sentiment was adversely affected by a significant increase in petrol and diesel prices, amounting to PKR 17.5 and PKR 20.0, respectively, the brokerage reported.

On the economic front, the fiscal year deficit was recorded at Rs6,521 billion (7.7 percent of GDP). In addition, as of June 2023, central government debt increased to Rs60.8 trillion (+3.3 percent MoM). Furthermore, last week, the State Bank of Pakistan's (SBP) reserves increased by $12 million to reach $8.1 billion.

Additionally, the rupee depreciated against the US dollar during the week, closing at Rs295.78, losing Rs7.29 (-2.46 percent) WoW.

The KSE100 index closed at 48,218 points, declining by 206 points (-0.4 percent) WoW. Average volumes came in at 232 million shares (down by 32.6 percent WoW) while the average value traded settled at $32 million (down by 36 percent WoW).

Foreigner buying was witnessed during this week, clocking in at $2.38 million compared to a net buy of $2.92 million last week. Major buying was witnessed in the technology sector ($1.45 million) and the exploration and production (E&P) sector ($0.72 million). On the local front, selling was reported by banks ($3.9 million) followed by funds ($1.62 million).

Sector-wise, negative contributions came from commercial banks (159 points), fertilizer (122 points), cement (63 points), chemicals (38 points), and E&P (37 points). Scrip-wise negative contributors were ENGRO (118 points), OGDC (77 points), MCB (65 points), MEBL (30 points), and HBL (22 points).

Meanwhile, the sectors which mainly contributed positively were technology (194 points) and textile composite (20 points). Scrip-wise positive contributions came from SYS (194 points), PPL (62 points), NESTLE (28 points), THALL (17 points), and ILP (17 points).

Muhammad Waqas Ghani, an analyst at JS Research, said that the week commenced with a positive tone, yet volatility persisted. In the realm of news, ending rumors and speculation, Senator Anwaar Kakar took oath as Caretaker Prime Minister.

The incoming PM's cabinet also took oath on Thursday. A potential prolonged caretaker setup remained under discussion this week.

On the economic front, FY23 LSM output declined 10.3 percent YoY owing to volatile economic and political conditions.

Nabeel Haroon at Topline Securities said that investor participation declined during the week as they preferred to monitor the transition to the incumbent interim government before making further investment decisions.

Major makert moving news during the outgoing weeks were Pakistan's sharing with the International Monetary Fund (IMF) a plan for containing gas sector circular debt estimated to have risen to Rs1.6 trillion.

In other news, the fiscal deficit for FY23 clocked in at Rs6.5 trillion (7.7 percent of GDP). The deficit came in 71 percent higher than the initial budget and 10 percent higher than revenue estimates.

Furthermore, after reporting a surplus for four successive months, Pakistan showed a current account deficit (CAD) of $809 million this July.