Stocks likely to continue recovery on strong valuations

KARACHI: Stocks experienced record losses amid profit-taking during the outgoing week. It witnessed some recovery in the last session on Friday, while the market is expected to continue recovering on strong valuations in the upcoming week.

“We expect the market recovery to continue in the coming week following the recent decline, as many stocks are now trading at attractive valuations, which is likely to entice investors,” stated brokerage Arif Habib Ltd.

The week commenced on a positive note with the SBP announcing a 200bps rate cut, reducing the policy rate to 13 per cent. The country also reported its highest current account surplus in a decade, amounting to $729 million in November 2024, a notable turnaround from the $148 million deficit recorded in November 2023.

However, Wednesday onward, the market experienced a significant downturn, with two consecutive historic single-day declines of 3,700 points on Wednesday and 4,800 points on Thursday, primarily driven by mutual fund redemptions and year-end profit-taking by institutional investors. Despite this, the market showed signs of recovery on the final day, closing the index at 109,513 points.

The market closed at 109,513 points, declining by 4,789 points or 4.19 per cent week-on-week (WoW). Average volumes arrived at 1,192 million shares (down 19.1 per cent WoW), while the average value traded settled at $218 million (up 10.2 per cent WoW).

Foreigner selling continued this week, clocking in at $11.6 million compared to a net sell of $0.9 million last week. Major selling was witnessed in E&Ps ($5.5 million), followed by banks ($4.3 million). On the local front, buying was reported by individuals ($25.8 million) and banks/DFIs ($10.5 million).

Sector-wise negative contributions came from oil and gas exploration (1,305 points), fertilizer (1,119 points), cement (798 points), commercial banks (446 points) and technology & communication (252 points). Scrip-wise negative contributors were MARI (966 points), LUCK (430 points), FFC (324 points), PPL (585 points) and Engro (309 points).

The sectors that contributed positively were OMCs (113 points), cable & electrical goods (72 points), and power (57 points). Scrip-wise positive contributions came from PSO (229 points), HUBC (166 points), INDU (90 points), ATRL (85 points) and BAFL (77 points).

Nabeel Haroon, an analyst at Topline Securities, said the KSE-100 index closed 4.37 per cent down on WoW, making it the first negative weekly closing after eight consecutive positive weekly closings. “This pressure in the market during the week can be attributed to selling by mutual funds on account of redemption by investors where they can in to book profit after bull run up,” he said.

Analyst Wadee Zaman at JS Research said the KSE-100 experienced a roller coaster ride during the week, declining 4.2 per cent. The week, however, ended on a positive note on Friday. Selling pressure was predominantly driven by mutual funds.

The SBP cut policy rates by 200bps during the week, in line with expectations, bringing the rate down to 13 per cent, a total decline of 900bps from its recent peak.

Moreover, LSM output posted a meagre increase of 0.02 per cent YoY in November, however, remained in negative territory during 4MFY25.

Pakistan’s power generation increased by 6.0 per cent YoY in November 2024, clocking in at 8,032GWh. The government raised Rs382 billion through PIBs where cut-off yields fell by up to 55bps across tenors.

Pakistan also witnessed $322 million in profit repatriation in November, taking the 5MFY25 tally to $1.13 billion, up 112 per cent YoY. The finance minister tabled a bill which included stringent taxes and regulations for non-filers. Moreover, the government signed a $330 million loan agreement with the ADB to strengthen social protection.

Foreign direct investment (FDI) for the month of November coming in at $219 million (up 65 per cent MoM and 27 per cent YoY) and the Oil & Gas Regulatory Authority’s (OGRA) proposal to the federal government to increase gas rates by up to 26 per cent to generate about Rs847.33 billion during the current fiscal year.

SBP reserves increased by $31 million, reaching $12.1 billion. At the week’s close, the rupee stood at 278.42 against the US dollar, reflecting a modest depreciation of 0.08 per cent WoW.