Economic uncertainty lingers as stocks fall on mixed signals

Stocks finished the week with modest losses as investors awaited fresh clues on the economic outlook amid mixed signals from the central bank and the external sector.

The market was weighed down by expectations of a rate hike, but the State Bank of Pakistan surprised the market by keeping the policy rate unchanged at 22 percent, citing a declining inflation trend in the coming months. The central bank also said it expects real interest rates to remain in positive territory on a forward-looking basis.

The current account deficit narrowed to $160 million in August from $775 million in July, while remittances rose 3 percent month-on-month to $2.1 billion. Foreign direct investment increased to $234 million in the first two months of the fiscal year from $201 million a year earlier. The rupee gained 2.05% against the dollar during the week, closing at 296.85 in the interbank market and 299.8 in the open market.

“Market participants are anticipated to closely monitor economic developments as they will substantially impact the market's course,” brokerage Arif Habib Ltd said in reserceh note. “With global crude oil price on the rise, there is an expectation of a further surge in petroleum prices in tandem with anticipation of a rise in gas tariff.”

The benchmark KSE-100 Index fell 0.6 percent to 45,754 points in the week, with average volumes rising 10 percent and average value traded increasing 21 percent.

Foreigner selling was witnessed this week, clocking in at $9.7 million compared to a net buy of $0.6 million last week. Major selling was witnessed in commercial banks ($5.3 million) and cement ($2.2 million). On the local front, buying was reported by insurance companies ($7.9 million) followed by other organizations ($4.0 million).

Sector-wise negative contributions came from commercial banks (225 points), fertilizer (100 points), oil & gas exploration companies (65 points), food & personal care products (42 points), and technology & communication (41 points). Scrip-wise negative contributors were MCB (77 points), FFC (51 points), ENGRO (50 points), HBL (41 points), and MEBL (35 points).

Meanwhile, the sectors which mainly contributed positively were cement (116 points), and inv. banks/inv. cos./securities cos. (63 points). Scrip-wise positive contributions came from DAWH (66 points), LUCK (56 points), HUBC (48 points), PSEL (39 points), and PIOC (18 points).

“The market largely remained range-bound during the week due to a lack of triggers,” Nabeel Haroon, an analyst at Topline Securities, said.

Major events that took place during the week were: State Bank of Pakistan keeping the policy rate unchanged citing that they see real interest rates to remain in positive territory on a forward-looking basis, current account deficit clocking in at $160 million for the month of Aug 23 compared to a deficit of $775 million in Jul 23, remittances for Aug 23 recording an inflow of $2.1 billion (up by 3 percent on MoM basis) and 5) car sale number coming in at 9K.

Analyst Muhammad Waqas Ghani at JS Research said the benchmark index started the week on a dull note as investors chose to divest their holdings due to apprehensions surrounding the key policy rate.

During the week, the rupee continued to gain and closed the week at Rs299.8 in the open market, gaining 1.7 percent week-on-week. He said that contrary to market estimates, SBP decided to keep the policy rate unchanged at 22 percent in the MPC meeting held this week. The central bank's decision was mainly based on expectations of a declining inflation trend in the coming months.