Market to stay positive on account of IMF loan, rupee appreciation

The capital market during the outgoing week moved both ways, as sentiments remained under the influence both positive and negative triggers, including approval of IMF loan, government move against benami holders of property, bank accounts and shareholders, as well as rupee appreciation.

The IMF’s board granted the much-awaited approval for $6 billion Extended Fund Facility (EFF) for Pakistan.

Moreover, the amnesty scheme - Asset Declaration 2019, concluded during the week collecting Rs70 billion in tax revenue through assets worth Rs3,000 billion filed by 137,000 beneficiaries.

However, the positivity on macro front failed to transpire in investors’ sentiment, which was visible through drop in both average traded volumes, down by 41 percent to 87 million shares with value amounting to 20 million dollars, dipping by 30 percent.

During the outgoing week, benchmark KSE-100 shares index was up 0.83 percent or 288 points to close at 34,190 points level.

An analyst from Topline Securities said equities remained volatile, as first three sessions ended in green zone cumulatively adding 995 points to the index.

However, the index witnessed profit taking in the last two trading sessions, which eroded approximately 713 points. Positive momentum gained at the start of the trading week phased out in later stages due to expected monetary tightening as a result of rising inflationary levels, he said.

As per the IMF statement, Pakistan’s average inflation in fiscal year 2020 was expected to be in double-digit (~13 percent) and GDP growth was expected to depict a sluggish momentum, forecasted to grow by 2.4 percent which raised concerns among investors.

Foreign investors remained on the front line to strengthen the equity market amid IMF bailout package and were net buyers of $5.83 million. However, local investors acted as a repelling agent and were on the selling end.

An analyst from Habib Metro-Finance said the equity market would turn bullish in the days to come as the government has received the much-needed support from the IMF and other financial institutions to bolster the economy.

Moreover, harsh budgetary measures could dampen the economic activity in the short run, so we recommend investors to stay vigilant with sizeable liquidity and cherry pick fundamentally strong stocks.

“With major macroeconomic concerns addressed to a larger extent, we expect market volumes to pick up going forward,” an analyst from BMA Capital Management said. This would be further supported by commencement of result season, where any earnings surprise and/or announcement of bonus/cash dividend might generate investors’ interest in select scrips.

“We view the market to remain positive in the upcoming week in lieu of the IMF package approval and recent appreciation of rupee against

the green back which will lift investors’ sentiments,” an analyst from Arif Habib said.

Key risks to the index include economic concerns on account of high current account deficit, slowdown in large scale manufacturing and further monetary tightening expected in upcoming monetary policy on the back of tariff hike of utilities (gas and electricity), which could trigger inflation noticeably.