Stocks to gain value amid hopes for cut in key policy rate

KARACHI: Pakistan stocks fell over 2.0 per cent during the outgoing week due to political uncertainty while the market is expected to stay positive next week amid hopes for a cut in the key policy rate by the State Bank of Pakistan.

“The market is expected to remain positive due to the anticipation of a potential rate cut in the upcoming monetary policy meeting scheduled for Monday,” stated Brokerage Arif Habib Ltd. “The continuation of the results season next week will further maintain the positive momentum.”

During the week, the market remained negative despite the $7 billion staff-level agreement between the IMF and Pakistan, commencement of result season, and the anticipation of a rate cut in the upcoming monetary policy. This bearish trend was mainly driven by political noise in the country.

The market closed at 78,030 points, losing 2,089 points or 2.6 per cent week-on-week. Average volumes arrived at 337 million shares (down by 27.3 per cent WoW), while the average value traded settled at $56 million (down by 41.7 per cent WoW).

Foreigner buying continued during the week, clocking in at $4.6 million compared to a net buy of $9.3 million last week. Major buying was witnessed in oil and gas marketing companies ($1.4 million) and commercial banks ($1.2 million). On the local front, selling was reported by mutual funds companies ($5.0 million) followed by individuals ($1.7 million).

Sector-wise negative contributions came from power generation & distribution (153 points), cement (111 points), commercial banks (107 points), oil & gas exploration companies (96 points) and fertilizer (83 points). Scrip-wise negative contributors were HUBC (120 points); DAWH (84 points); UBL (56 points); Engro (49 points); and PSO (45 points).

The sectors that mainly contributed positively were technology & communication (31 points); chemical (27 points); automobile assembler (19 points); real-estate investment trust (5 points); and textile spinning (2 points). Meanwhile, scrip-wise positive contributions came from MEBL (49 points), TRG (42 points), EFERT (35 points), LCI (30 points), and FFBL (18 points).

Wadee Zaman, an analyst at JS Research, said KSE100 continued to remain under pressure during the week owing to the ongoing political unrest in the country leading to uncertainty on the economic front, resulting in investors taking a cautious approach. The country also awaits the final nod from the IMF’s executive board for the new EFF of $7 billion.

The government is actively negotiating with China for debt reprofiling of energy debt along with the plan to convert imported coal power plants to Thar coal. Pakistan is also aiming to issue Panda bonds, the yuan-denominated debt would allow Pakistan to diversify funding sources and reach new investors, Wadee Zaman said.

Analyst Nabeel Haroon at Topline Securities said the decline in the index can be attributed to increase in political noise following the government’s reluctance to implement the court’s reserved seat decision in favour of the opposition and measures by the government to ban the opposition party ‘PTI’.

Profit-taking by investors after a long consolidation period around the 80,000 level was also one of the reasons for pressure in the market during the week, he said.

A major event during the outgoing week was T-bill auction in which yields declined in the range of 30-56bps ahead of the monetary policy announcement on Monday, July 29.

In other news, the SBP’s reserves clocked in at $9 billion, a decline of $397 million due to external debt repayments.

As per Nepra data, power generation during June 24 was reported at 13,461GwH, posting a growth of 7.0 per cent MoM, reaching 10-month high levels amid higher consumption during summer.

FDI settled at $169 million in June 24, down by 37 per cent MoM. The rupee depreciated against the dollar by 21 paisas or 0.1 per cent to arrive at 278.34.