Politics, earnings hold key to aiding stock rally

The capital market is expected to be driven by political developments and continued earnings season next week, with investors likely betting on cement companies expecting better earnings on higher sales, an analyst from Ismail Iqbal Securities said on Saturday.

The benchmark KSE-100 shares index was steady during the outgoing week as political dust settled with new incumbents likely to take oath in the coming week. However, throughout the week, the bourse remained range-bound amid concerns on widening current account deficit and dwindling reserves, which are yet to be resolved.

The index showed marginal rise of 337 points or 0.8 percent to close at 42,842 points. Volumes during the week settled at 208 million shares, down by 27 percent compared to the preceding week, while value traded arrived at $78 million, showing a fall of 19 percent on week on week basis.

Samiullah Tariq, head of research from Arif Habib Limited, said positive developments engulfed the market after the Saudi government indicated a potential $4 billion loan for Pakistan. “Selling of eurobonds worth $1 billion as well as the IMF program are also on the cards to support the external position,” he added.

Sector-wise positive contributions came from cements, contributing 216 points to the index on the back of reduction in coal price, and oil and gas marketing companies, and auto assemblers adding 60, and 57 points, respectively.

The oil marketing companies scored better on expectation of better financial results, whereas the latter posted double digit growth in sales during the first month of the new fiscal year.

During the week Bloomberg reported that National Accountability Bureau (NAB) has started an inquiry into the awarding of an LNG terminal to Engro Corporation (ENGRO).

The probe will look into allegations of an “illegal award” of Pakistan’s first LNG terminal to Engro’s Elengy Terminal Pakistan Limited.

The negative impact on the stock price was however short-lived as it closed up 2.9 percent for the week.

Foreign selling continued during the outgoing week, clocking-in at $38.6 million compared to net selling of $14.6 million last week. Selling was witnessed in exploration and production, $13.8 million, and Commercial Banks, $10.6 million.

On the macro front, another development that gave peace of mind to investors was the National Savings move to issue investment certificates.

The proposed diaspora bond is expected to bear three years and 5 years maturity.

Expected amount is around $500 million to $1.2 billion, with likely profit between six and seven percent.

Details have emerged that the Federal Board of Revenue has collected Rs97 billion by the end of last fiscal year under the tax amnesty scheme, which is 0.2 percent of the gross domestic product, whereas another Rs23 billion was collected in July 2018.

BMA Capital Management expects investors to track the upcoming administration’s response in dealing with the balance of payments issues, where any positive news on potential inflows from multilateral institutions, friendly countries or both may be welcomed by market participants.

Furthermore, a number of blue chips are to announce financial results in the coming week, where better than expected results may trigger rally in select scrips/sectors.