Stocks under pressure as govt, IMF hit impasse over loan

Market witnessed a decline of almost two percent with average daily volume dipping by 26 percent due to the impasse between the government and International Monetary Fund over the loan package, IMF remarks on slowing country’s economy, and rise in benchmark interest rate.

Investors remained defensive looking at the economic situation in the country, which due to the stalled talks with the IMF seems dismal.

The government has extended talks with the IMF, and final talks would be held in January to shape out some loan package to help assist the ailing economy.

Finance Minister Asad Umar said the government would not sign the agreement with IMF under pressure, and was not in a hurry for the package, as alternative arrangements have been made to address the immediate economic needs.

The alternative arrangement arrived in the shape of $1 billion from Saudi Arabia that has increased the foreign exchange reserves held by the State Bank of Pakistan to $8.3 billion. This was the first time in 13 weeks that reserves have increased week on week basis.

Throughout the week, foreigners remained the net sellers in the capital market. Foreign selling amounted to $11.6 million as against $24.1 million in the previous week. It is worth noting that this is the 29th consecutive week that foreigners remained net sellers at the market. On the local front, insurance and banks were net buyers of $12 million cumulatively.

Average daily turnover clocked in at 157 million shares, down 26 percent, compared with the previous week. Due to lack of triggers, market closed the week down 791 points or 1.9 percent to close at 40,869 points. The highlight of the week was a sharp down-move in international crude which was closely mimicked by local E&P players as they pared values amidst sizeable selling pressure. This non-stop decline in international oil prices continued to negatively impact E&Ps, which cost 329 points to the index for the week, the worst amongst all sectors.

Banks contributed 35 percent (279 points) to the decline in the benchmark index mainly led by selling in United Bank Limited (UBL) and Habib Bank Limited (HBL).

UBL was down 2.4 percent last week due to its intimation of voluntary liquidation of New York branch in view of commercial viability.

“We expect rates to be jacked up by 100 basis points, while any increase of a greater quantum can trigger another wave of selling in the near term,” an analyst from Habib Metro-Finance Securities said. Dearth of near term triggers and delay in clarity on the next IMF programme would keep sentiments toned down.

An analyst from BMA Capital Management said with the conclusion of the IMF talks, focus of market participants was likely to shift to monetary policy, where interest was likely to show an increase of one percent to 9.5 percent. Rate hike above expectations might rejuvenate investors’ interest in select banks. “Amid lack of triggers, we maintain our liking for defensive, currency, and interest hedged sectors,” an analyst said.