Stocks relief rally needs economic management to keep up pace

Pakistan’s capital market recorded tremendous gains led by calm general elections, but now the market is to take direction from the steps of the new government to tackle economic challenges, analysts said on Saturday.

“We expect the relief rally to fizzle out gradually over the upcoming week as focus on key economic challenges take the centre stage and accordingly will guide market sentiments,” an analyst from the BMA Capital Management said, requesting anonymity.

Stocks market staged a handsome rally during the outgoing week, gaining 1,565 points or 3.8 percent to close at 42,786 points, as investors cheered the smooth conclusion of general elections 2018.

Analysts said the market will closely track the progress on formation of the government at the centre and provinces. Contrary to street expectations of a weak coalition government in Islamabad, Pakistan Tehreek-e-Insaf emerged as the leading party capable of comfortably forming a relatively stable coalition govt.

The start of results season may provide some cushion to the market performance, as investors cherry-picked stocks to benefit from year-end dividend announcements and/or earnings surprise.

The market breached an important psychological resistance level of 42,000 points. The optimism driven by political clarity was witnessed in participation as well with an average daily turnover improving 7.3 percent to 235 million shares while average daily value of shares was simultaneously up 4.3 percent to $70 million.

A prospective finance minister Asad Umar, recently talking to media, mentioned about exercising of all options, including International Monetary Fund, to pull the country out of twin deficits and economic crisis.

Topline Securities, in a report, said the equity market rejoiced as political uncertainty subsided post-elections with no chance of a ‘hung parliament’, leading to improved market sentiment.

Banks remained the top performing sector for the second consecutive week, contributing 368 points to the index gain, as the market continued to anticipate earning accretion from further monetary tightening.

Simultaneously, better industry outlook and cheap valuations in fertiliser and cement sectors kept market participants interested, with the two sectors contributing 506 points to the market.

Oil and gas was one of the top drivers of the Index during the week because of a rise in international crude oil prices.

Foreigners remained net sellers to the tune of $0.4 million in the week as against net selling of $22.1 million seen during the same period last week. On the local front, individuals were net buyers amounting to $19 million, while mutual funds were net sellers amounting to $18.4 million.

Brokerage Ismail Iqbal Securities said the index gained 2,515 points due to the rally across the board with all the sectors being beneficial.

Analysts said allegations of foul play in elections by trailing parties and international monitoring agencies could not have a lasting effect on the market.