Attractive valuations likely to underpin slumping stocks market

KARACHI: Equity investors are most likely to have a cautious approach and bearish sentiments might persist after the market closed down for the seventh consecutive sessions last week amid confusion about rupee and rate hike prospects, dealers said.

“Given uncertainty in rupee/dollar parity, macroeconomic concerns and lack of positive triggers we expect the market to trade range bound,” brokerage Arif Habib Limited said in a report. “Attractive valuations may revive investor sentiments.”

The benchmark KSE 100-share Index of the Pakistan Stock Exchange (PSX) closed on negative note for the seventh consecutive week, taking cumulative losses of seven weeks to 15 percent. The index lost 4.5 percent, highest percentage loss after 30 weeks, or 1,550 points, to close at the 33,167 points level during the outgoing week.

Activity improved slightly with a daily average volume of 107 million shares compared to 73 million last week.

“We expect the market direction next week to be determined by Monday’s monetary policy statement,” Ismail Iqbal Securities said.

BMA Capital said the upcoming week is expected to remain news-heavy with the week kicking off with the monetary policy statement.

“We expect a hike of 50 basis points in the upcoming announcement,” BMA Capital said. “The outcome of the FATF (Financial Action Task Force) meeting in Beijing, details of the IMF (International Monetary Fund) program, and news surrounding the upcoming budget are expected to remain in limelight.”

Analysts said the first week after the agreement with the IMF was havoc for the capital market as rupee devaluation sent negative signals to the market participants.

Negative sector-wise contributions came from fertilisers (335 points), cements (237 points), commercial banks (229 points), oil and gas marketing companies (219 points) and pharmaceuticals (92 points). Sectors that contributed positively included oil and gas exploration companies (83 points) and power generation (19 points).

Scrip-wise negative contributions came from Fauji Fertilizer Company (161 points), Pakistan State Oil (85 points), Engro (80 points) and HBL (76 points). Positive scrip-wise contributions came from Pakistan Petroleum Limited (109 points), Hubc (84 points), and Pakistan Oilfield (49 points).

Foreign buying continued clocking in at $8.2 million compared to a net buying of $10.4 million. Buying was witnessed in banks ($8.2 million) and cement ($5.6 million).

Topline Securities said the continuous fall in the index level is due to rupee devaluation, expected hike in policy rate, selling pressure from mutual funds with net selling of $14 million in four sessions.

Fertiliser sector remained among one of the top laggards to the index on concerns over withdrawal of sales tax exemption and reports of replacement of gas infrastructure development cess with federal excise duty.

Similarly, cement sector also performed poorly, as factors like slower economic growth, hike in policy rate and devaluation are likely to have substantial dent on manufacturers’ profitability.

Unrest at the equity market was a result of anticipation of further interest rate increases and rupee devaluation in addition to energy price hikes.