Blue-chips in focus as cherry-picking preferred amid pending IMF decisions

Equity investors would prefer to stay on the sidelines or limit exposure to blue-chips after six consecutive weeks of mayhem eroded much of their gains, dealers said.

Brokerage Habib Metro-Financial Services said uncertainty would continue to hover over the market until an International Monetary Fund (IMF) deal is signed.

The benchmark 100-share Index of the Pakistan Stock Exchange closed its sixth consecutive week on negative note and lost 3.9 percent week-on-week – the highest percentage loss in 23 weeks – or 1,406 points to close at 34,716.5 points.

“Continuous fall in index level is due to selling by mutual funds to the tune of $10 million in the first four sessions of the week, and concerns on additional tax measures by revenue authorities on dictation of IMF,” Topline Research said.

“The market is looking ahead for semiannual index review by MSCI (Morgan Stanley Capital International) scheduled on May 13 with participants concerned over potential downgrade of Pakistan to frontier market.”

Average daily market volumes on the main board and the broader market reached 57.19 million and 73.48 million, respectively. Commencement of Ramazan from Tuesday weighed down on the market activity.

Foreign investors mopped up shares worth $9.25 million. Most of the buying by foreign investors was concentrated in commercial banks ($10.7 million) whereas the fertiliser sector witnessed the bulk of outflows ($2.99 million). On local front, mutual funds and insurance companies were net sellers of $10 million and $3.86 million, respectively.

Negative sector-wise contributions came from fertilisers (313 points), oil and gas exploration companies (284 points), cements (130 points), pharmaceuticals (113 points) and oil and gas marketing companies (108 points).

Scrip-wise negative contributions came from Engro (131 points), Pakistan Petroleum Limited (104 points), Searl (84 points) and Mari (83 points). Positive scrip-wise contributions came from Nestle (32 points), HBL (21 points), and Colgate (11 points).

“As has been the scenario over the recent past, the primary factor for a lacklustre market was economic uncertainty, which has recently ramped up by a notch or two ahead of the IMF program and the federal budget FY2020,” Ahmed Lakhani, an analyst at JS Research said. “Recent news flows surrounding IMF and the associated conditions have not helped the market’s cause, suggesting inevitable belt-tightening measures such as further rupee devaluation, removal of special subsidies/concessions to various sectors, interest rate hikes, etc., which might be announced in the upcoming budget.”

Brokerage BMA Capital management said three key developments are expected to materialise in the upcoming week. Firstly, MSCI is set to announce results of its semi-annual index review, which should contain insight regarding Pakistan’s status in the MSCI emerging market index. Secondly, Pakistan will present its progress to the Financial Action Task Force review committee in Colombo. Lastly, the government and IMF are expected to conclude staff level discussions on a bailout package. “The outcome of these three important events is likely to dictate direction of market,” BMA Capital said in a report.