Stocks gain 9pc on attractive valuations; market to remain buoyant

The capital market recovered from a drought that lasted one and a half month, and made a record highest gain of 9 percent in a week on steady appreciation in rupee, and attractive valuations of blue chips and trading stocks, dealers said.

An analyst from Topline Securities said the bourse witnessed revival owing to attractive valuation of equities (market forward PE was at 11 year low to 5x). Recovery was also based on expectations that the Securities and Exchange Commission of Pakistan (SECP) may change rules to support market, along with falling bond yields and subsiding concerns on Kashmir issues post involvement of US president.

The benchmark KSE-100 shares index bounced back sharply after a long six-week bloodbath. Participation in the index also increased with volumes witnessing a drastic surge compared to recent trends.

The index closed 9 percent or 2,585 points higher, closing at 31,350 points level, which was the highest weekly return ever in terms of points.

Sector-wise positive contributions were led by commercial banks up 744 points, oil and gas exploration companies up 469 points, fertiliser up 319 points, cement up 235 points and power generation and distribution up 216 points.

Scrip-wise positive contributions came from Engro (256 points), OGDC (205 points), HBL (188 points), Hubco (160 points) and MCB (147 points).

Average volumes settled 135 percent up at 174 million shares, compared with the preceding week while average value traded was 83 percent higher, clocking in at $38 million from the preceding week.

A leading analyst said improving external account balance further rejuvenated sentiment, with the current account deficit declining by 73 percent in July 2019 to $579 million.

The latest PIB auction raised Rs494 billion against a target of Rs100 billion with cut-off yields declining by 25bps and 40bps for the 5-year and 10-year PIBs respectively, indicating that the markets see interest rates to have peaked. Reduction in the cut-off yields is likely to have a positive bearing on equity valuations.

Foreign selling was witnessed this week clocking-in at $4.97 million compared to a net buy of $1.7 million last week. Selling was witnessed in exploration and production and fertiliser stocks. On the domestic front, major buying was reported by individual $6.5 million and broker proprietary trading $3.8 million. Based on NCCPL data, foreigners remained net sellers amounting to $5 million. On the local’s side, mutual funds remained net sellers at $3.55 million.

“We expect the market momentum to slow down amid profit-taking,” an analyst from Arif Habib said. The brokerage expects the sentiments to remain positive with investors continuing to accumulate scrips at current attractive valuations.

Foreign interest was likely to revive amid improving external account balance and strengthening forex reserves

An analyst from BMA Capital Management said, “With major macroeconomic concerns likely to be addressed to a larger extent, we expect market sentiment to remain buoyant. This should further be supported by ongoing result season where any earnings surprise and/or announcement of bonus/cash dividend may generate investors’ interest in select scrips.”

An analyst from Habib Metro-Financial Services said PSX-100 was expected to remain in recovery mode in the forthcoming sessions; however, investors should stay focused with spare liquidity and cherry-pick fundamentally strong scrips.