Stocks sink 3 percent on runway inflation

KARACHI: Stocks sank near three percent on Monday, their worst day in this year, after dismal inflation readings for January crushed investors’ hopes of an interest rate cut in the next quarter, dealers said.

“Moreover, downside pressure in Asian markets and down-slide in commodities prices due to unabating coronavirus fears augmented the selling across the board,” brokerage Aba Ali Habib Securities said in a post market note.

Pakistan Stock Exchange’s (PSX) benchmark KSE-100 shares index lost 2.93 percent or 1221.55 points to close at 40,409.38 points, whereas KSE-30 shares index shed 3.30 percent or 632.35 points to end at 18,515.43 points.

Dealers said market nosedived as “headline inflation skyrocketed to a multi-year high of 14.56 percent year-on-year, surpassing the market consensus of 13.5-13.7 percent”. Foreign outflows, weak global crude oil prices, and concerns over impact of hike in local gas tariff on corporate earnings led to a record fall at the PSX.

Of 351 active scrips, only 43 managed to gain, 296 ended up in the red column, and 12 closed unchanged. As many as 203.139 million shares changed hands, as compared to 193.866 million shares in the previous session.

Analyst Samiullah Tariq at Arif Habib Limited, said the market underwent heavy selling pressure and all the gains made in January got wiped out in one session.

“The main factors behind the rout were: higher inflation numbers, which have, to a definite extent, ruled out any early easing of monetary policy and worries that a lingering coronavirus crisis might hurt the Asia’s largest economy, leading to a slowdown in imports from China,” Tariq said.

Shahab Farooq, director research at Next Capital, said, the January inflation that came at 14.6 percent, significantly overshooting the market consensus, had severely affected investor sentiment, putting in question the timing of starting monetary easing by the SBP, expected from May 2020 at the earliest.

“The latest inflation reading will most likely take the overall numbers for FY20 out of the projected range of the SBP that is 11-12 percent,” Farooq added.

Faisal Shaji, strategist at Standard Capital investors viewed that interest rates may remain unchanged for few more months. “Already second quarter results of many entities would be weak, hence opportunities for 2020 could be availed on dips.”

The session since the opening suffered losses, taking cue from the Chinese stock markets, which fell 9 percent leading more than 2,600 companies into the negative zone. During the trading session, the index found support and resistance at 40,233.64 and 41,630.93 points respectively.

Dealers said the market is expected to remain shaky in the upcoming sessions and recommend buying fundamentally strong names on dips.

Monday’s top gainers were Sapphire Textile, up Rs46.88 close at Rs911.99/share, and Sapphire Fiber, up Rs39.96 to finish at Rs705.96/share.

Colgate Palmolive, down Rs147.41 to close at Rs2,309.54/share, and Rafhan Maize, down Rs127.67 to close at Rs6772.33/share, emerged as the major losers.

Bank of Punjab was the volume leader with 23.527 billion shares, while it lost Rs0.35 to end at Rs12.84/share.

The lowest volumes were witnessed in DG Khan Cement, recording a turnover of 4.015 million shares; however, it gained Rs3.51 to end at Rs71.15/share.