Market to remain volatile in near-term

The capital market ended the week flat, as it recovered from the pre-budget losses during the post-budget period, on a clear message from the government that the new fiscal would move to document the economy, dealers said.

The benchmark KSE-100 shares index ended the week up 0.2 percent or 68 points to close at 35,573 points level. Overall market activity slowed down sharply during the week as evident by 12 percent and 23 percent drop in average daily turnover and average daily volume to 136 million shares and $34 million, respectively.

Foreign investors emerged as net sellers during the outgoing week, offloading positions worth $4.9 million.

The market remained focused on the budget, which unveiled higher tax collection target of Rs5,500 billion, inflation for next year at 11-13 percent and GDP growth of 2.4 percent.

The budget removed zero-rated status for five export sectors, including textiles, and introduced variety of duties such as higher federal excise duty on cements and new FED on locally manufactured vehicles. Moreover, a uniform 15 percent capital gains tax across all classes of investors irrespective of holding period and sector and 17 percent sales tax on sugar were the main highlights.

The end of the week saw the rupee tumbling, closing at Rs155.85/dollar on Friday depreciating five percent on weekly basis. International oil prices also remained exceptionally volatile this week. On Wednesday, the prices were down over three percent, as global recession fears rose, but increased the next day, when two oil tankers were attacked in the Gulf of Oman.

Foreign selling continued this week clocking-in at $4.9 million compared to a net sell of $2.3 million last week. Major selling was witnessed in E&Ps at $6.9 million, and all other sectors at $0.8 million).

On the local front, buying was reported by individual ($2.8 million) followed by mutual funds ($2.7 million). That said, average daily volumes for the outgoing week were up by nine percent to 136 million shares likewise value traded increased by eight percent to $34 million.

According to an analyst from BMA Capital Management, the upcoming week was expected to witness heightened political noise as proceedings of cases on prime political figures should take centre stage and add to investors' uneasiness.

However, with end of FY19 round the corner, market is likely to look forward to the result season as well as release of key data points such as current account deficit and detailed trade figures that were expected to be released next week.

An analyst from Habib Metro-Financial Services said the market would stay volatile in near-term due to participants awaiting the IMF deal closure. “We recommend long-term position building in fundamentally strong stocks with discounted valuations,” he said.

“We view the market to remain positive in the upcoming weeks amid announced budgetary measures being positive for equities and making it the most attractive asset class for investors,” an analyst from Arif Habib said.

On the other hand, activation of a PSX stabilisation fund in the foreseeable future would also improve sentiments. Albeit, economic concerns continue to hover for a high CAD, endless slide of the rupee against greenback and further rate hike expected with inflation set to tick higher post adjustment in utility prices (gas and electricity tariff hike).