Stocks expected to carry on bullish rally after snapping 3-week rout

Stocks market’s resilience that paid off the three-week rout by delivering a highest-ever weekly return of 12.5 percent is likely to spill over the next week with undervalued shares still in focus, but an expected downbeat earnings could counteract the bargain hunting, dealers said.

“The upcoming week will likely negate the disappointing data release expected from various industries as lockdown continues to restrict normal business,” brokerage BMA Capital Management said.

“We expect the rally to partially spill over the next week provided concerns over coronavirus spread remain in check.”

The capital market made new milestone by scoring mammoth gains during the outgoing week on government’s decision to announce package for industries amid the novel coronavirus and gains in crude oil prices cemented overall gains.

Pakistan Stock Exchange’s benchmark KSE-100 index surged 12.5 percent week-on-week or 3,512 points to close at 31,622 points. Average volume settled at 228 million shares, up 52 percent, while average value climbed 66 percent to $46 million.

Banks and exploration and production (E&P) rallied as their valuations had reached dirt cheap levels. Towards the end of the week, an announcement of a possible agreement between Saudi Arabia and Russia to cut production sent oil prices soaring with West Texas Intermediate up 18 percent.

Foreign selling continued during the week, clocking in at $36.1 million compared to a net selling of $13.7 million last week. Selling was witnessed in E&Ps ($13.5 million) and commercial banks ($8 million). On the domestic front, major buying was reported by individuals ($13 million) and funds ($10.3 million).

Sector-wise, positive contributions came from commercial banks (764 points), oil and gas exploration companies (550 points) and cement (537 points).

Scrip-wise, positive contributions were led by Hubco (290 points), Lucky Cement (227 points), and UBL (186 points).

Analysts said optimism in the bourse was sourced from the federal government announcing a series of measures to mitigate risks to the economy from the COVID-19. The government unveiled a massive relief package for the construction industry and announced opening of a few industries during lockdown, boosting investor sentiments.

The government actions to reduce the impact of COVID-19 played a vital role in bullish momentum.

The incentives package for the construction industry to keep economic activity upbeat should help in sustaining the positivity in the cement/engineering sector, while oil shares should be dictated by the developments regarding an emergency meeting of oil producers, according to market observers.

“We expect the index to continue the rally as investors celebrate the government’s proactive stance to keep the economy afloat during the lockdown,” an analyst said.

“We expect the stimulus-inspired rally to march ahead into the next week, while any sharp buildup in local coronavirus infections

can lead to a possible panic-sell-off.”

An analyst said March inflation reading helped in paving the way for higher expectations of another rate cut in the near term. There was a sharp drawdown in foreign exchange reserves largely on account of exodus of hot money from the debt market, as the rupee continued to shed value against the US dollar.

“Now, any developments with regards to international oil prices and movement are likely to grasp investor’s attention,” the analyst said.

“The upcoming results season can unveil negative surprises in corporate earnings giving early signs of the economic fallout on local corporates of the pandemic.”