Investor caution prevails in PSX; IMF talks, MPC decision in focus

Stocks concluded the week on a downward trajectory, shedding 977 points to close at 64,816, a 1.5 percent decline from the previous week. The dip reflects investor trepidation amidst ongoing IMF negotiations and ahead of the anticipated monetary policy statement.

Traders are pinning hopes on positive outcomes from the IMF talks and the upcoming monetary policy, which could potentially buoy market spirits in the coming week.

“Ongoing discussions with the IMF are focused on securing the second tranche of the SBA (Stand-By Arrangement). On successful conclusion, Pakistan will receive the third tranche, totaling $1.1 billion,” said brokerage Arif Habib Limited.

"Additionally, the energy minister has emphasized the importance of addressing the energy circular debt, with efforts to expedite its resolution underway; any favorable progress in this regard would uplift market sentiment."

"Moreover, the upcoming MPC (Monetary Policy Committee) meeting scheduled for 18th March, where we expect a rate cut of 100bps, could potentially stimulate positive market sentiment."

The stock market remained under pressure throughout the week, primarily due to divided opinions about the upcoming MPS, alongside negotiations with the IMF for the final review. Concurrently, the formation of the cabinet and the appointment of Muhammad Aurangzeb as finance minister brought resolution to lingering uncertainties.

Average volumes arrived at 340 million shares (down by 20.1 percent week-on-week) while the average value traded settled at $41 million (down by 30.5 percent week-on-week).

Foreign buying continued during this week, clocking in at $2.7 million compared to a net buy of $6.3 million last week. Major buying was witnessed in commercial banks ($1.9 million) and cement ($1.83 million). On the local front, selling was reported by companies ($2.5 million) followed by broker proprietary trading ($1.7 million).

Sector-wise negative contributions came from fertilizer (215 points), oil & gas exploration (190 points), commercial banks (174 points), oil & gas marketing companies (103 points), and power (55 points). Scrip-wise negative contributors were DAWH (203 points), OGDC (108 points), ENGRO (78 points), BAHL (68 points), and UBL (68 points).

The sectors which mainly contributed positively were automobile parts (20 points), paper & board (6 points), and chemicals (4 points). Meanwhile, scrip-wise positive contributions came from MEBL (62 points), EFERT (52 points), LUCK (47 points), THALL (20 points), and PTC (18 points).

Shagufta Irshad, an analyst at JS Research, said the market experienced high volatility throughout the week, resulting in negative closings for four out of the five trading days.

Average trading volume also shrank by 20 percent week-on-week, depicting reduced market activity as the month of Ramadan begins. New cabinet ministers taking charge of their respective offices and the subsequent arrival of the IMF delegation for the final review of the $3 billion SBA were the key highlights of the week.

The newly elected government remained quite firm about meeting all the structural benchmarks, and quantitative and indicative targets set by the IMF.

The IMF team has reportedly expressed some concerns regarding the government's forthcoming strategies to address the anticipated revenue shortfall in 4QFY24 and to decrease the accumulated circular debt in the energy sector.

"It's noteworthy that the review report is slated to be submitted to the IMF executive committee by the second week of April for the approval of the $1.1 billion tranche," she said.

Analyst Nabeel Haroon at Topline Securities said the negativity in the market can be attributed to some profit-taking by individuals and companies during the week after the recent bull in the market on the back of the formation of government and the incumbent government's resolve to engage with the IMF.

On the economic front, the government raised Rs93 billion against a target of Rs50 billion through Ijarah Sukuk, while Broad Money (M2) increased by Rs496 billion to Rs32.7 trillion as of 1st Mar’24. Additionally, SBP reserves SBP reserves increased by $17 million week-on-week, reaching $7.9 billion. The rupee appreciated slightly, closing at 278.74 against the dollar, with a week-on-week increase of Rs0.29 or 0.11 percent.