Bulls may stay on course; banks, energy in focus

Market may keep up growth momentum led by bank and energy stocks owing to rupee depreciation and its subsequent push to interest rate on inflation spike as well as oil rise, dealers said.

Stocks rallied 3.8 percent during the shorter week ended March 22 on currency devaluation, an expected announcement of tax amnesty scheme and pledges of foreign loans.

Analyst Faizan Ahmed at JS Global Capital said an abrupt rise of the US dollar against rupee helped in sustaining last week’s feeble bull-run.

“While this raised macroeconomic concerns about inflationary pressures and interest rates [hike] major international financial institutions advocated depreciation amid external account vulnerabilities and rapidly depleting foreign exchange reserves.”

The KSE-100 shares index gained 3.84 percent or 1667.61 points to close the week at 45,030.22 pints.

KSE-30 shares index surged 4.7 percent or 1018.91 points to 22,569.60 points.

After seven weeks of consecutive selling, there was a net foreign buying of $0.2 million worth of shares. On the local front, mutual funds were net buyers of $12.2 million, whereas individuals were net sellers of equities worth $17.2 million.

“Over four percent depreciation in rupee value [in a single day] changed the market momentum with investors speculating an uptick in policy rate by 25 to 50 basis points in the upcoming monetary policy,” Arif Habib Limited said in a report.

“Sectors that will potentially benefit from depreciation including banks, exploration and production, power, technology and textile led the rally during the outgoing week.”

Banks rallied 6.3 percent, led by an expectation of increase in interest rates. Analysts are expecting at least a quarter basis points increase in interest rate to 6.25 percent in the central bank’s monetary policy announcement scheduled next week.

Exploration and production sector rose four percent owing to both rupee depreciation and increase in oil prices. Similarly, power producers increased 2.1 percent due to their dollar indexed revenues.

Reports that cement makers were increasing prices by Rs10/bag in north region invited buying in the sector, which closed 32.4 percent up.

Investors are, however, concerned over precarious external account position, increasing debt burden and looming political uncertainty.

Current account deficit widened 50 percent in 8MFY2018, while government borrowed $7.7 billion during the same period to replenish the depleting foreign exchange reserves of the country. Moody’s has already warned Pakistan of a possible downgrade risk to its credit outlook.