Attractive valuations, blue-chip results may renew buying interest in stocks

Equity investors are looking forward to bank on attractive valuations of the battered stocks, while forthcoming financials from blue chips next week might renew their buying interest in the market, dealers said.

Brokerage Arif Habib Limited said Prime Minister Imran Khan’s trip to the U.S. could resolve issues with the Financial Action Task Force, which may lure further foreign investments in the country.

“Attractive valuations may also revive momentum at the index,” the brokerage said in a report. “In the immediate term, result season could dictate the market performance.”

Several major blue chips are due to announce financial results in the upcoming week.

The capital market remained volatile throughout the week due to ongoing rollover week and selling from financial institutions especially from mutual funds.

The benchmark KSE 100-share index declined 1.1 percent at 32,103.27 points at the end of the week. Daily average volume settled at 75 million shares, down 29 percent week-on-week, while daily average value traded clocked in at $21 million, falling 13 percent.

The market remained positive initially, but selling from mutual funds kept the index under pressure for the rest of the week. Negative results from Habib Bank Limited and Pak Suzuki dampened the market’s sentiments.

Protests by opposition parties led to a reversal in market fortunes, leading to decline in the index in the last two trading sessions. Opposition parties staged protests on Thursday, exactly one year since the last elections, in most major cities of the country against recent economic and political reform measures of the government.

Major selling was reported by mutual funds ($13.4 million) and companies ($1.2 million). Foreign buying was witnessed during the week, clocking in at $8.4 million compared to net buying of $6.4 million last week, according to the National Clearing Company of Pakistan Limited. Buying was witnessed in commercial banks ($5.6 million) and cement ($2.3 million).

The State Bank of Pakistan held the Pakistan Investment Bonds (PIBs) auction during the week where yield of the 10-year PIB dropped 15 basis points despite increase in policy rate by 100 basis points. The government raised Rs225 billion through PIB auction against the target of Rs200 billion.

Brokerage BMA Capital Management said another PIB auction is scheduled in the upcoming week, while July consumer inflation is also due next week.

“We flag that a potentially below expected CPI (consumer price index) reading may act as a trigger for the market,” the brokerage said.

Negative contributions were led by power generation and distribution sector (71 points), followed by food and personal care products (66 points), oil and gas marketing companies (49 points), cement (39 points), and tobacco (27 points). Scrip-wise negative contributions came from Hubco (48 points), Engro (47 points), Nestle (31 points), Mari Petroleum (31 points) and Pakistan Tobacco (27 points).

At the week’s start, investors were expecting Prime Minister’s trip to the U.S. leading to a possible improvement in the bilateral relations.

Talks were held on various issues, including improving trade between the two countries. U.S. President Donald Trump in a meeting hinted at a possibility of restoring around $1.3 billion in aid to Pakistan that was suspended last year, brokerage Ismail Iqbal Securities said.

“Potential receipt of CSF (coalition support fund) inflow as a consequence of improving relations between USA and Pakistan may also lift investor sentiments,” BMA Capital added.