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Bulls likely to bet on attractive valuations amid rate cut hopes

By Danyal Haris
March 08, 2020

KARACHI: Stocks market is expected to witness cherry-picking ahead on attractive valuations after coronavirus spectre and oil surfeit kept on dampening the investors’ sentiments last week despite lucrative buying opportunities in leveraged shares surfacing on rate cut prospects, dealers said.

“We believe that the coronavirus related fears and its impact on the local equity market have been overplayed,” brokerage Habib Metro-Financial Services said in a report.

“We maintain our liking across banking, oil and gas, fertiliser and cements and recommend a cherry-picking approach to make the most of the discounts on offer,” Habib Metro-Financial Services added.

The capital market, during the outgoing week, witnessed a seesaw proceedings where positive developments helped in pumping the share values, but selling at the last session owing to fear of coronavirus spreading to more countries dampened the hopes badly that economies would not fare well in the coming period, the dealers said.

Pakistan Stock Exchange’s benchmark KSE-100 Index was up 0.62 percent week-on-week or 236 points to close at 38,220 points. Average volumes remained stable at 243 million shares while average value traded clocked in at $65 million, up 35 percent on week-on-week basis.

Analysts said lower-than-expected inflation reading of 12.4 percent for February cemented investors’ confidence that rate cut is in the offing. The market was expecting monthly inflation at 13 percent. Moreover, consequential decline in yields seen in the latest Pakistan Investment Bond auction spurred expectations of an early rate cut, which helped in giving traction to equities. The central bank is expected to announce monetary policy end of the current month.

“Fears of coronavirus taking a firm grip across the globe led to a shockwave in equity markets both internationally and locally,” an analyst said.

Foreign selling continued this week, clocking in at $16.7 million compared to a net selling of $22.5 million last week. Selling was witnessed in cement sector ($5.1 million) and exploration and production ($3.5 million). On the domestic front, major buying was reported by mutual funds ($15.4 million) and companies ($ 11.1 million).

Cement offtake witnessed a steady uptick, which let the sector register a home run during the outgoing week. Sentiments were further elevated by strong expectations of a rate cut in the upcoming monetary policy, which stands ready to relax cost pressure in the highly-leveraged sector.

The annual results season has almost concluded with most of the earnings up to expectations, whereby banks and fertiliser were outperformers, while automobile, cement and oil marketing sectors witnessed contraction in earnings due to the ongoing slowdown in the economy.

Brokerage Arif Habib said the fears about coronavirus and its impact on the economy, and the continuation in pressure on global equities is likely to keep the market performance subdued, although “valuations across the board particularly in blue chips have reached attractive levels”.

BMA Capital Management, however, said the bleak investor sentiments are expected to prevail in the absence of potential triggers, while the global selloff might continue to bring expectations of global slowdown into limelight.

Analysts said lower oil prices might pose threat on earnings of the index heavyweight oil and gas sector, which is likely to drag down the index yet it. But, positive vibes are coming from trade figures and inflation reading, they said.

Sector-wise negative contributions came from banks (388 points) driven by expectations of a rate cut and power generation and distribution (49 points). Positive contributions came from cement (329 points). Scrip-wise negative contributions were led by HBL (119 points), UBL (71 points), and BAFL (54 points), while positive contributions were led by Luck (113 points), and DGKC (51 points).