Elections-engrossed market sees support in results to keep up rally

Stocks market is intensively engrossed in elections happenings having witnessed boom and bust cycles, but results spree next week are likely to shift its focus to fundamentals-driven rally, dealers said.

BIPL Securities said the market performance is contingent on the strength of new government-to-be after general elections scheduled next week. “Additionally, with the beginning of result season from next week, corporate earnings will dictate the direction of market,” the brokerage said in a weekly report. The KSE 100-Index of Pakistan Stock Exchange gained 950.75 points or 2.36 percent during the outgoing week due to a pre-election rally. Some jitters were, however, felt on rupee devaluation.

“The exchange rate devalued by 5.3 percent on Monday, resulting in tanking of the market,” Ismail Iqbal Securities said in a report. Foreign portfolio outflow remained at an elevated level during the week, as net selling from overseas financial institutions exceeded $22 million, which further dented sentiments. Investors were, however, expecting elections to smoothly proceed and therefore rushed to cherry pick ahead of elections next week. Sector-specific developments convinced investors to make new positions in fertiliser sector. Fertiliser companies showed renewed interest after urea price rose Rs50 to Rs1,630 - 1,640/bag owing to the strong demand of fertiliser for the summer crops. Another factor which boosted fertiliser shares was healthy increase in water levels in dams.

Topline Research said increase in cement prices and urea prices, during the week, also helped pull cement and fertiliser sectors higher, together adding 294 points to the index. It said banking stocks continued the rally from end of last week and have contributed 279 points to the index since the latest monetary policy statement that raised the key interest rate by 100 basis points to 7.5 percent. Steel manufacturers raised the price of high quality rebar to Rs107,000–Rs 11,000/ton as against Rs97,000/ton. Abdul Azeem, head of Research at Spectrum Securities said the increase in the index was an outcome of long-term investment on behalf of Punjab pension fund. Out of the total fund size of $39 million, $14 million were allocated to four asset management companies in the equity market on July 19.

“We foresee market to remain volatile pre-election, while post-election we foresee a short bull rally to enter into the market to celebrate smooth transition of democracy,” Azeem added. “However, Pakistan's economic conditions are quite grave, which should be a point of concern for the investors.” The central bank’s reserves stood at $9 billion as of July 13, down by $416 million over a week ago, mainly due to foreign debt repayments. Exports of goods, however, recovered to $24.772 billion in FY2018 from $22.003 billion in FY2017, which gave some support to textile companies. As growth heralded in textile products it hints that listed companies are likely to perform better compared to preceding years.

The central bank also imposed 100 percent cash margin on imports of 131 non-essential items to curb hefty trade deficit.

Moreover, the Asian Development Bank agreed to lend $200 million to Pakistan to establish a fund for mitigating risks of natural hazards. All-Shares Index total capitalisation, during the week, rose two percent to $66.7 billion mainly due to increase in capitalisation of banks (2.3 percent), exploration and production (0.1 percent) and food (4.2 percent).