Stocks finish steady on positive expectations from mini-budget

Stocks remained steady throughout the week, as investors made fresh bets in select blue-chips that outperformed the market on expectation that the mini-budget will bring some relief in fertiliser and automobile sectors.

The KSE-100 index closed in the green for the third consecutive week, gaining 258 points or 0.7 percent to close at 39,307 points level. Positive sentiments were driven on possibility of third budget of FY19, which was expected to reduce/eliminate advance tax of 0.2 percent on brokers, rationalise group taxation system, ensure ease of doing business, and reduce input cost for export-oriented sectors.

Foreign selling for the week was $9.42 million, as against net buying of $0.6 million in the previous week. In terms of market activity, major inflows amounting to $7.3 million and $3.7 million were witnessed from individuals and mutual funds, while insurance and banks/DFI remained net sellers at $1.8 million and $1.1 million, respectively.

An analyst from Spectrum Securities said, “Investor confidence was boosted following the visit of Saudi energy minister and their plan to set up a $10 billion oil refinery in Pakistan.”

On the flipside, concern over economic progress and availing the International Monetary Fund (IMF) bailout package remained the major anxieties among investors, thus trading activity continued to be dull, the analyst added.

Announcement of the mini-budget has been scheduled for January 23, 2019, which has gathered interest of the investors.

The expected outcomes of the budget were also one reason that kept the blue-chip fertilisers, automobiles and textiles in the limelight.

Expectations, such as a reduction of 50 percent in the gas infrastructure development cess helped the fertiliser sector post a gain of 2.07 percent during the outgoing week, while the automobile assembling sector climbed by 1.56 percent after the announcement by government that duty and taxes on imported cars should be paid in foreign currency.

Economic fundamentals remained depressed raising alarms, as the SBP’s foreign reserves fell below $7 billon, while the current account deficit rose by 37 percent in December 2018, compared to the preceding month. Moreover, foreign direct investment also showed a sharp decline of 19 percent during the first half of this fiscal year.

An analyst from Habib Metro-Finance said the market was expected to remain fragile in the up-coming sessions, and challenges on the macro-economic front would be key red flags. However, the results season should provide some excitement.

“We broadly maintain our cautious stance, and suggest investors to take exposure in export oriented/USD denominated revenue stocks with sound fundamentals and limited leverage,” the analyst said.

An analyst from BMA Capital Management said the announcement of the mini-budget could be delayed, as the prime minister was due to go to Qatar on a two-day visit starting January 21, 2019.

“News flow on upcoming mini-budget and outcome of the trip in terms of potential balance of payment support would be closely tracked by the market in the upcoming week,” the analyst added.

Furthermore, the results season was expected to commence from the coming week, which might generate investors’ interest in select scrips.