Market awaits SBP policy rate verdict with bated breath

Stocks ended the week on a positive note, as investors looked ahead to the monetary policy announcement by the State Bank of Pakistan (SBP) next week for market direction.

"Market participants are expected to keep a close eye on economic developments, as they will significantly influence the market's trajectory," said brokerage Arif Habib Ltd. "With the monetary policy announcement in the upcoming week, investors will maintain a cautious stance."

Moreover, with the ongoing result season, the energy chain is expected to stay under the limelight given the anticipation of robust results.

The market commenced on a positive note after the caretaker prime minister informed that Saudi Arabia is expected to invest $25 billion in Pakistan. Moreover, the Pakistani rupee witnessed a sharp appreciation in the open market after a crackdown against foreign currency smuggling was initiated, which boosted investors' confidence in the local bourse.

However, the massive jump in cut-off yields of T-bills signaled a possible hike in the State Bank of Pakistan's (SBP) policy rate in the upcoming monetary policy committee (MPC) meeting next week, keeping the market in check. The USD/PKR parity settled at PKR 302.95, appreciating by Rs2.52, or 0.82 percent, on a week-on-week basis.

The KSE-100 index closed at 46,013 points, up by 701 points, or 1.5 percent, on a week-on-week basis. Average volumes arrived at 146 million shares, down by 31 percent on a week-on-week basis, while the average value traded settled at $17 million, down by 36 percent on a week-on-week basis.

Foreigner buying continued during this week, clocking in at $0.6 million compared to a net buy of $3.3 million last week. Major buying was witnessed in commercial banks ($1.2 million) and exploration and production ($0.7 million). On the local front, selling was reported by mutual funds ($2.5 million) followed by banks/DFIs ($1.5 million).

Sector-wise, positive contributions came from fertilizer (171 points), E&Ps (94 points), OMCs (78 points), commercial banks (77 points), and power (74 points). Scrip-wise positive contributors were DAWH (102 points), PPL (85 points), ENGRO (58 points), MEBL (52 points), and HUBC (47 points).

Meanwhile, the sectors which mainly contributed negatively were pharmaceuticals (12 points) and automobile assemblers (4 points). Whereas, scrip-wise negative contributions came from BAHL (44 points), LUCK (36 points), INDU (17 points), POL (15 points), and HMB (12 points).

Nabeel Haroon at Topline Securities said the gain can be attributed to the recent resolve shown by the army chief to improve business sentiment. The army chief met with businessmen to highlight the potential of the Special Economic Zones (SEZs) to attract investment from Saudi Arabia, the United Arab Emirates, and Kuwait. During the meeting, the army chief expressed his resolve to bring money exchanges under the tax umbrella and to bring transparency in dealing in foreign currencies. "Following this, over the week, the gap between the interbank and open market narrowed, as speculators rushed to sell their holdings in foreign currency," Haroon said.

Investor confidence further improved from a follow-up statement by the caretaker prime minister, who presided over meetings to increase tax collection and stated the government's resolve to start off the privatization process.

Muhammad Waqas Ghani, an analyst at JS Research, said the week began on a positive note thanks to the release of August CPI inflation figures last Friday evening, which showed a year-on-year increase of 27.4 percent, coming in below the market consensus.

On the news front, the provision of relief on electricity bills remained under discussion, with the government facing hurdles in providing any relief without the approval of the International Monetary Fund (IMF). In other news, the government has been considering strategies, including anti-theft/recovery efforts, energy conservation through early shop closures, and negotiations to revise Power Purchase Agreements of CPEC IPPs to deal with power sector issues.