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July 15, 2018

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Stocks end flat as attractive valuations help pare losses

Stocks ended flat as attractive valuation levels and rally in financial scrips kept participants interested which helped pare losses made at the start of the week when the index faced a 1,000 points decline, dealers said on Saturday.

An analyst from Elixir Securities said that the banks would continue to remain in limelight owing to expected interest rate hike. However, the momentum of banks rally would remain dependent on the size of interest rate hike.

“With regards to political risk, elections are likely to take place on time in our view as all stakeholders ie political parties, Pakistan Army and judiciary remain determined on holding timely election. However, incessant foreign selling continues to linger as a major concern,” he said.

The benchmark KSE-100 index declined by over 900 points in the first session of the outgoing week, but then pared losses in the remainder of the week to close at 40,271 with loss of 13 points or only 0.03 percent.

The rout in the beginning of the week was attributed to former prime minister Nawaz Sharif’s announcement to return to the country after the verdict in Avenfield case. But later in the week, recovery recorded owing to value hunting as well as a rally in financials ahead of the monetary policy announcement, wherein the majority of the market participants expected a rate hike.

Meanwhile, significant foreign portfolio outflow did not provide any respite to the market during the week. While foreign selling mounted to nearly 26 million dollars during the week, since the beginning of the current fiscal year it has reached nearly 35 million dollars.

“Selling erupted, because globally the foreign investors are readjusting their holdings, especially in the emerging markets, a leading trader said. Other concerns that forced the foreign investors to pull out of the capital market have been the happenings on the political front, rising economic issues, and the fear of another round of currency depreciation.

However, market activity also did pick up some pace, with average daily traded value and volume going up by 41 percent and 18 percent to 49 million dollars and 131 million dollars, respectively.

Among the sectors, banks remained the primary driver, helping the index recover 418 points on expectation of sizeable increase in the benchmark interest rate. On the economic front, fiscal deficit was expected to stand at 7.1 percent of gross domestic product due to shortfall in tax collection, and lower provincial budget surplus due to excessive spending, as per the reports.

It has also been reported that so far, the Federal Board of Revenue has collected Rs97 billion through the amnesty scheme with the declaration of domestic assets of Rs1.2 trillion and 4.8 billion dollars worth of foreign assets.

An analyst from BMA Capital Management said that political noise was likely to further go up in the coming week ahead of the elections 2018. “We expect the market to remain range bound with investors preferring to remain sideways (a more of wait-and-see approach),” he said.

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