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February 9, 2020

Market to remain wobbly as political volatility grows


February 9, 2020

Stocks shed 3.6 percent during the outgoing week as hopes of any interest rate cut were dashed following high inflation numbers and increase in cut-off yields of long tenor bonds, dealers said, expecting the market to get shaky in days ahead.

An analyst from Arif Habib said, “We expect the market to remain in the red following pessimism created from high inflation readings, which have led to apprehensions over rate cut, which may not materialise soon.”

Moreover, an expected shortfall of Rs750 billion in FY20 tax revenue targets have added to concerns over the fiscal deficit recovery as well as the possibility of more tax revenue measures.

Pakistan Stock Exchange (PSX) benchmark KSE-100 shares index declined by 3.6 percent, or 1,487 index points, to settle at 40,144 at the end of the week.

Market participation declined, as average daily turnover dropped 11 percent week-on-week to clock in at 168 million shares, while average daily value was registered at $45 million, flattish on week-on-week basis.

For the week, foreign investors were net sellers with net outflow of 14.2 million shares, whereas among domestic participants, insurance and individuals were major buyers with inflows of $13.7 million and $7.7 million, respectively.

CPI inflation rate rose to 14.6 percent in January 2020. This was largely due to higher food prices, which pushed overall inflation to 11.6 percent for the current fiscal year. This has left question marks on an interest rate cut in the near-term, tattering market sentiments.

Local cement dispatches displayed a 3.86 percent increase for the month of January, going up to 23.64 million tons in seven months ended January 31, 2020 against 22.76 million metric tons in the same period last year.

Exports, on the other hand, went up by a massive 25.23 percent owing to greater clinker exports. This, however, did not sway sentiments for the sector, which fell 4.56 percent during the outgoing week.

Analyst from Habib Metro-Financial Services said, “We expect the market to remain shaky in the near term as political volatility grows and concerns surround macro-economic indicators.”

The latest PIB auction has shown a surprise increase within a range of 8-25bps increase, which has further soured sentiments. “We recommend investors to keep exposure limited to fundamentally strong scrips,” the analyst added.

An analyst from BMA Capital Management said that in the upcoming week, current account deficit numbers for January might heal market sentiments. “We are of the view that ongoing earnings season also has potential to turn the tide, as commercial banks are expected to keep posting better results on account NIMs expansion and portfolio gains.”

Analysts expect both the construction and auto sectors to post subdued profitability.

On the FATF front, China, US, Saudi Arabia, UAE, Malaysia, and Turkey are supporting Pakistan, which will be sufficient to give the country an extension to comply with the remaining requirements. However, the possibility of a positive surprise could not be ruled out. To put things in perspective, Pakistan needs support of 12 members to get itself out of the blacklist.

Sector-wise negative contributions came from oil and gas exploration companies (376 points), commercial banks (241 points), oil and gas marketing companies (150 points), fertiliser (140 points), and cement (125 points).

Scrip-wise negative contributions were led by Pakistan Petroleum (158 points), OGDC (125 points), Habib Bank (104 points), PSO (74 points), and Dawood Hercules (57 points).