Stocks likely to move up as inflation eases

KARACHI: Stocks reached the historical milestone of 100,000 points during the outgoing week, and the market is expected to keep the upward momentum amid expectations for a further decline in inflation.

“We anticipate the market will sustain its positive momentum in the coming week, driven by expectations of a further decline in inflation. We project November inflation to decline to 4.7 per cent YoY,” said brokerage Arif Habib Ltd. “Furthermore, certain scrips are trading at attractive valuations, which are likely to continue enticing investor interest.”

The week commenced on a negative trajectory as heightened political unrest led the market to decline by around 3,500 points. However, with the easing of political uncertainty, the market swiftly recovered the following day and ultimately surpassed the 100,000 points level. Key drivers of this recovery included expectations of further easing in inflation and a strong rally in commercial banks following the removal of minimum deposit rate (MDR).

The market concluded the week at 101,357 points, marking a gain of 3,559 points (3.64 per cent week-on-week). Average volumes arrived at 979 million shares (down 1.2 per cent WoW), while the average value traded settled at $133 million (up 7.1 per cent WoW).

Foreigner selling continued during this week, clocking in at $15.1 million compared to a net sell of $33 million last week. Major selling was witnessed in banks ($4.7 million) followed by fertiliser ($4.2 million). On the local front, buying was reported by insurance ($10.6 million) followed by individuals ($7.3 million).

Sector-wise positive contributions came from commercial banks (1,676 points), technology & communication (349 points), oil & gas exploration companies (284 points), oil & gas marketing companies (260 points) and cement (234 points). Scrip-wise positive contributors were HBL (694 points), BAHL (538 points), PPL (274 points), SYS (255 points), and BAFL (205 points).

The sectors that mainly contributed negatively were miscellaneous (52 points), automobile assembler (11 points), and automobile parts and accessories (5 points). Scrip-wise negative contributions came from MEBL (439 points), EFERT (78 points), FABL (57 points), PSEL (56 points), and SAZEW (34 points).

Analyst Abdul Basit at JS Research said bullish momentum continued to prevail, with the KSE-100 reaching its historical milestone of 100k levels during the week.

He said the week began with an uncertain political environment amid protests, which led to significant selling in the market. However, the decline was limited, followed by a strong recovery after the protest was called off. Developments in the banking sector regarding changes in the minimum deposit rate kept activity, in the sector, high throughout the week.

In the recent T-bill auction, the government raised Rs616 billion against a target of Rs800 billion, with yields decreasing by 61-85bps across different tenors. Similarly, the six-month Kibor dropped by 96bps WoW to 12.67 per cent, reaching its lowest level in over 2.5 years.

Moreover, auto financing continued to recover for the second consecutive month (3.7 per cent MoM), reaching Rs236 billion in Oct-2024. As per the latest data, SBP reserves increased by $131 million WoW to $11.4 billion. Additionally, Pakistan received $500 million from the ADB under its climate financing programme, which will be reflected in the upcoming week.

The PKR marginally depreciated by 0.10 per cent WoW, concluding the week at 278.04 against the greenback.

Nabeel Haroon, an analyst at Topline Securities, said the KSE-100 index increased by 3.64 per cent on a WoW basis; this gain was largely led by the heavyweight banking sector on development on the MDR front, where the sector rallied after the SBP removed the MDR requirement for all conventional banks on deposits from financial institutions, public sector enterprises and public limited companies.