Stocks set to rally on political stability and earnings optimism

KARACHI: Stocks are expected to extend their bullish trend in the next week, as investors anticipate the formation of a new coalition government led by the centre-right Pakistan Muslim League-Nawaz party, analysts said on Saturday.

The Pakistan Stock Exchange's benchmark KSE-100 index closed at 62,816 points on Friday, up 2,943 points or 4.92 percent from the previous week, when it was at 59,873 points.

“A new government is expected to be formed in the upcoming week, which will bolster the ongoing positive sentiment,” said brokerage Arif Habib Ltd. “Moreover, the result season will continue in the next week, where certain scrips are anticipated to be in the limelight amid the expectation of robust results.”

The brokerage said the market momentum remained buoyant during the week, taking the index level beyond 62,000 points again from 59,000 points last week. The elated sentiment comes amid an agreement between winning political parties to form a coalition government.

The market closed at 62,816 points, significantly gaining 2,943 points or 4.92 percent week-on-week. Average volumes arrived at 338 million shares (down by 3.3 percent week-on-week) while the average value traded settled at $45 million (down by 6.3 percent week-on-week).

Foreign buying continued during this week, clocking in at $2.9 million compared to a net buy of $5.2 million last week. Major buying was witnessed in all other sectors ($3.7 million) and commercial banks ($1.5 million). On the local front, selling was reported by individuals ($6.2 million) followed by insurance companies ($1.6 million).

Sector-wise positive contributions came from E&Ps (623 points), banks (513 points), technology (355 points), fertilizer (255 points) and power (254 points). Scrip-wise positive contributors were OGDC (340 points), PPL (221 points), HUBC (216 points), SYS (201 points) and MEBL (195 points).

The sectors which mainly contributed negatively were miscellaneous (26 points) and chemical (16 points). Meanwhile, scrip-wise negative contributions came from PSEL (57 points), NESTLE (20 points), COLG (15 points), FATIMA (11 points), and AKBL (10 points).

Muhammad Waqas Ghani, an analyst at JS Research, said the increase in the index follows the agreement among political parties to proceed with the formation of a coalition government led by PML (N).

Pakistan's dollar bond prices also jumped in the range of 1-6 percent across the board after the two major political parties reached an agreement to form a coalition government.

On the macro front, the current account balance returned to the red zone in January-2024, reporting a deficit of $269 million, taking the first seven months of the current fiscal year's current account deficit to $1.1 billion. Around $700 million negative swing in the current account balance was broadly led by a higher trade deficit (up $600 million month-on-month).

Moreover, as per the latest NEPRA data, power generation during January-2024 declined by 2 percent year-on-year while generation cost saw a 23 percent year-on-year increase in January.

SBP reported a 0.5 percent week-on-week decrease in foreign currency reserves, maintaining the $8 billion level for the past three months. SBP also conducted a T-Bills auction during the week, where cut-off yields increased in the range of 33bp to 126bp across different maturities.

The remittances reported a growth of 26 percent year-on-year in January 2024. Moreover, Roshan Digital

Account in January witnessed an inflow of $142 million, settling at $7.3 billion.

Analyst Nabeel Haroon at Topline Securities said the gain can be attributed to an agreement between PML-N and PPP on power sharing and the formation of the federal government, which has put an end to the ambiguity on the formation of the government given that no political party had a clear majority to form the government in the recently held general election.