Stocks poised for further gains as coalition govt nears

KARACHI: Stocks are likely to extend their gains next week as investors welcome the formation of a new coalition government, which is expected to be led by the Pakistan Muslim League-Nawaz, ending weeks of political uncertainty, analysts said on Saturday.

The market gained 4 percent during the outgoing week on easing political uncertainty as investors bet on a smooth transition of power and a stable economic outlook.

“The ongoing developments on the political front with the process of establishing a new government (which is anticipated to conclude by next week) are likely to keep a positive outlook among investors,” brokerage Arif Habib Limited said in a note. “Moreover, with the (February) inflation (23.1 percent) hitting a 20-month low, which is expected to boost investor sentiment in the upcoming week, the market is anticipated to remain positive in the upcoming week.”

The market continued its positive momentum and witnessed a surge from 62,000 points to 65,000 points, reflecting investor optimism amid the ongoing government formation process. With the swearing-in of the national assembly members and the impending prime ministerial election on Sunday, the market has responded positively to expectations of political stability and government formation.

The market closed at 65,326 points, climbing up by 2,510 points or 4.0 percent week-on-week. Average volumes arrived at 419 million shares (up by 24 percent week-on-week) while the average value traded settled at $56 million (up by 23 percent week-on-week).

Foreign buying continued during this week, clocking in at $10.5 million compared to a net buy of $2.9 million last week. Major buying was witnessed in commercial banks ($4.0 million) and all other sectors ($3.4 million). On the local front, selling was reported by banks/DFIs ($6.4 million) followed by insurance companies ($3.7 million).

Sector-wise positive contributions came from commercial banks (806 points), fertilizer (777 points), oil & gas exploration (280 points), auto assembler (184 points) and cement (159 points). Scrip-wise positive contributors were ENGRO (279 points), EFERT (211 points), MEBL (182 points), MTL (160 points) and MARI (160 points).

The sectors which mainly contributed negatively were technology (37 points), pharmaceuticals (28 points), leather & tanneries (24 points), and cable and electrical goods (11 points). Meanwhile, scrip-wise negative contributions came from TRG (51 points), OGDC (37 points), SRVI (24 points), PAEL (11 points), and ABOT (11 points).

Analyst Shagufta Irshad at JS Research said investors welcomed the initiation of the government formation process. The first national assembly and provincial assembly sessions were called during the week. Elections for prime minister and president are scheduled for 3rd and 9th March 2024, respectively, which will be followed by senate elections later this month.

Nabeel Haroon at Topline Securities said the benchmark increased 4 percent on week-on-week basis as investors rejoiced in political parties coming along to form the government, where after the formation of provincial assemblies elected representatives from the national assembly took their pledge in the maiden session.

On the economic front, SBP’s forex reserves decreased by $63 million to reach $7.95 billion down from $8.0 billion a week earlier. Additionally, the FBR collected Rs681 billion during Feb’24 against the assigned target of Rs714 billion during this month, reflecting a massive shortfall of Rs33 billion.

The government announced a Rs4/litre increase in petrol prices while HSD prices were kept unchanged for the fortnight. As per the latest PBS data, the trade deficit for Feb-24 clocked in at $1.7 billion, taking 8MFY24 trade deficit to $14.9 billion, a 30 percent year-on-year decline.

Moody's maintained the credit rating at 'Caa3' with a stable outlook for Pakistan, highlighting liquidity and external vulnerability challenges ahead. During the week, rupee closed at 279.19 against dollar, appreciating by Rs0.17 or 0.06 percent week-on-week.