Stocks likely to continue upward trend amid decline in inflationary pressures

KARACHI: Stocks closed slightly higher during the outgoing week while the market is expected to keep up with the positive momentum amid development on IMF loan and expected higher earnings in some stocks.

“We anticipate the market to sustain its positive momentum, building on the gains seen at the end of this week. This outlook is supported by easing inflationary pressures, largely driven by a decline in international oil prices,” stated brokerage Arif Habib Ltd. “Moreover, with the ongoing result season, certain scrips are anticipated to be in the limelight amid the expectation of robust results.”

The market experienced initial pressure due to selling by investors, but several positive economic developments emerged throughout the week. The State Bank of Pakistan (SBP) continued its monetary policy easing cycle, cutting the policy rate by 200bps to 17.5 per cent, a move not seen since Apr 20. As a result, KIBOR rates fell between 25 and 119bps across various tenors, which was welcomed by market participants.

On the international front, there was significant progress regarding Pakistan’s IMF programme, as the country’s name was officially added to the IMF board's meeting agenda for September 25, 2024.

The market closed at 79,333 points, marking an increase of 435 points or 0.55 per cent week-on-week. Average volumes arrived at 606 million shares (down by 10.2 per cent WoW), while the average value traded settled at $55 million (up by 4.7 per cent WoW).

Foreigner selling continued this week, clocking in at $7.5 million compared to a net sell of $6.7 million last week. Major selling was witnessed in fertiliser ($3.7 million) and banks ($2.9 million). On the local front, buying was reported by individuals ($7.2 million) followed by mutual funds ($4.8 million) and companies ($4.4 million).

Sector-wise positive contributions came from fertiliser (161 points), cement (159 points), E&P (92 points), leather (74 points) and pharmaceutical (54 points). Scrip-wise positive contributors were EFERT (121 points), OGDC (100 points), SRVI (74 points), UBL (69 points), and LUCK (66 points). Meanwhile, the sectors that mainly contributed negatively were commercial banks (119 points), automobiles (115 points), and power generation (80 points). Scrip-wise negative contributions came from MTL (115 points), MEBL (85 points), MARI (85 points), HUBC (81 points), and HBL (78 points).

Analyst Wadee Zaman at JS Research said the KSE-100 index briefly crossed the psychological barrier of 80,000 points but was unable to maintain the level due to selling pressure on the last trading day. “In a significant development, the much-awaited update on the IMF programme emerged, with the IMF Executive Board scheduled to meet in September 2024, to approve the US$7 billion Extended Fund Facility (EFF), as highlighted in their press briefing,” Zaman said.

The FBR also hinted at an announcement of Rs650 billion mini-budget to meet the revenue shortfall, with a potential increase in WHT on properties and GST on tractors along with strict measures to be taken against non-filers.

Pakistan foreign workers’ remittances clocked in just shy of $3 billion for the month of Aug-2024 marking the 4th consecutive month with around $3 billion remittances.

Ali Najib, an analyst at Topline Securities, said equities closed the week on a flat note as the index was up only 0.55 per cent.

Other significant developments during the week included a decline in international oil prices as Brent hit a low of $69.08 per barrel (the lowest since December 2, 2021) while US crude oil traded down to $65.82 per barrel (the lowest since May 4, 2023);

Oil production remained down one percent WoW to 63.4k bpd due to low production from Tal Block (MOL) and Nashpa (OGDCL) amid forced curtailment by SNGPL while gas production remained higher 2 percent WoW to 2,774 mmcfd due to improved volumes from Uch field.

The Pakistani rupee appreciated against the US dollar by 0.15 per cent at 278.2. SBP forex reserves increased by $30 million WoW, clocking in at $9.5 billion as of September 5, 2024 -- the highest level in 26 months.