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February 16, 2020

Index to remain range-bound as investors await FATF decision


February 16, 2020

Equities recorded erratic movement over International Monetary Fund (IMF) and government parleys, which created doubts amongst investors over tax revenue collection; however, with Finance Adviser Hafeez Shaikh abandoning mini-budget move, market recovered on a positive note.

An analyst from BMA Capital Management said, “We anticipate the market to remain range-bound during the upcoming week due to the prevalent inflationary pressures, likely causing a delay in the monetary easing cycle.”

Pakistan Stock Exchange (PSX) benchmark KSE-100 shares index inched up 0.25 percent or 100 points to settle at 40,243 points level at the end of the week. The market commenced on a negative note echoing last week’s negative sentiment amid uncertainty regarding performance review talks between the government and IMF team.

Concerns over rising inflation peaking at 14.6 percent, 12-month treasury-bill yield up 39 basis points, and dampened sentiments in international markets due to new coronavirus outbreak, took the index below 40,000 points.

Bulls returned later in the week after IMF and government agreed not to introduce a mini-budget. Market activity remained flat as average daily turnover registered at 168 million shares, whereas activity was noted at $40.3 million, down 11 percent on weekly basis.

Foreign investors were seen offloading $10.6 million. This was mainly concentrated in banks at $3.6 million and textiles at $2.7 million. On the other side, fertilisers witnessed $1.2 million inflows.

Ahmed Lakhani from JS Group in his weekly report said the visit of the Turkish President and subsequent signing of memoranda of understanding were positive trends and could be positive from foreign direct investment perspective.

However, corporate results have generally been in-line and no surprises (barring maybe DG Khan Cement) have sprung up. Finally, foreign exchange reserves increased for the nineteenth week in a row, which was a noteworthy and positive trend pointing towards an improving external account.

End of ambiguity on IMF review for the next tranche, and government efforts to curb inflation with better food supply via Rs10 billion subsidies to Utility Stores Corporation were positive developments for the market. “We expect that these efforts will help control inflation and mitigate the overall sentiment of interest rate hike, currently real interest rate is in negative zone,” an analyst from Spectrum Securities said.

The Financial Action Task Force (FATF) review was also scheduled in the upcoming week, where a positive feedback from the financial watchdog might reinvigorate investor sentiments regardless of the final outcome.

An analyst from Habib Metro-Financial Services said, “The results season is on its peak while the decision from FATF is due next week. The equity market is expected to stay uncertain, taking hints from the upcoming corporate results for further movement.”

An analyst from Arif Habib suggested investors to keep an eye on FATF assessment too, and to closely follow the market developments hunting for attractive discounts in blue-chip stocks. “We expect the market to remain range-bound given political uncertainty followed by continuing concerns over coronavirus.”

With forex reserves reaching $18.7 billion, rupee is expected to remain stable against greenback.

Sector-wise positive contributions came from commercial banks (123 points), cement (63 points), power generation and distribution (55 points), tobacco (24 points), and insurance (12 points). Scrip-wise positive contributions were led by Habib Bank (92 points), Hubco (83 points), Lucky Cement (45 points), MCB Bank (39 points), and Pakistan Tobacco Company (24 points).