All eyes on interest rate; market focus moves to central bank

Political tensions will keep roiling stocks market while investors are counting on support coming from the central bank on interest rate later in month to help the economy avoid a severe downturn, dealers said.

Decline in long-term bonds boosted investors sentiment, overshadowing the protest march against the government in Islamabad but it unnerved the foreign investors where selling pressure increased sharply.

The government stepped up measures to boost the economic activities by taking up steps including suspension of axle load condition for one year. Similarly CNIC condition for retail trade was also deferred till January 2020. These steps tremendously helped moved the market to positive zone.

“PIB cut off yield reflecting easing monetary policy in medium-term which headway the economy in near future,” a broker said. “However, Increasing SPI affects demand adversely.”

Dealers said opposition Azadi March weighed heavily on minds of some of the investors, which forced the market not to score big.

The Pakistan Stock Exchange benchmark KSE-100 index closed at 34,378 points, increasing by 720 points or 2.14 percent on week-on-week basis.

Foreign investors offloaded stocks worth $3.13 million compared to a net buy of $2.78 million in the outgoing week. Major selling was witnessed in E&P ($2.06 million) and Textile ($1.34 million).

Average daily volumes for the outgoing week were massively up by 34 percent to 166 million shares likewise value traded increased by 41 percent to 36 million dollars.

Analysts said the benchmark index provided positive weekly return of 2.1 percent after posting a loss of two consecutive weeks. Positive sentiment was witnessed among investors due to decline in PIBs yields in the range of 90-115bps.

Leveraged cement stocks such as MLCF, CHCC, DGKC and PIOC gained in the range of 12 percent to 24 percent as investors anticipates an early rate cuts following the declining trend of PIBs yields,” Topline Securities said in its weekly market report.

An analyst at Habib Metro-Financial Service said the recent bullish run has been largely due to improved sentiments over a possible rate cut in the near-term.

“The market faces some hiccups in case the political heat rises substantively at the federal capital. We, however, continue maintaining our liking for E&Ps, large-cap banks and fertilizers and recommend investors to find exposure in fundamentally sound names at lower levels,” the analyst said.

Another analyst at BMA Capital Management said clarity on lower inflation levels going forward has emerged making way for expectations of interest rate cut as soon as mid-November 2019 in the State Bank of Pakistan’s monetary policy committee meeting’s announcement.

"We view the SBP to lower the policy rate by 50bps,” the analyst said. “On the other hand, drowning noise on the political front is expected to keep investor’s interest alive."

Contribution to the upside was led by i) Banking Sector (189 points) ii) Cement Sector (187 points), iii) Oil and Gas Marketing (96 points), iv) Fertilizer (88 points), and v) Power (61 points).

Scrip wise major gainers were DAWH (83 points), MCB (81 points), PSO (78 points), LUCK (51 points), and DGKC (46 points).

Whereas, scrip wise major losers were FFC (42 points), OGDC (20 points), and NESTLE (-17 points).