Stocks set to rise as reopenings could fuel demand

The capital market closed above the 34,000 points level with gains concentrated in cement, oil, and fertiliser scrips backed by rising crude oil prices, announcement to begin construction of Diamer Basha dam, and cut in the benchmark interest rate, dealers said.

Pakistan Stock Exchange (PSX) benchmark KSE-100 shares index surged 2.2 percent or 741 points to close at 34,008 points. Average daily volumes for the outgoing week were up by 15 percent to 219 million shares, whereas value traded decreased by 13 percent to $40.3 million.

An analyst from Arif Habib Limited said, “The market is expected to focus on developments surrounding the federal budget expected next month that shall dictate the direction for the rest of the month.”

Furthermore, “we believe that the market is currently trading at attractive levels where we suggest gradual accumulation of fundamentally sound scrips at these levels to achieve significant gain in the medium to long-term”, he added.

Brokerage BMA Capital Management said, “We expect the market to remain green due to easing of lockdown in the country, which will revive economic activity.”

Moreover, SBP announced 100 basis points reduction in policy rate to cushion economic fallout amid lower inflationary readings on account of slowdown in demand and decline in fuel prices, which might fuel bullish sentiments, he said.

Another leading analyst said the sharp rise in COVID-19 cases and related deaths seen in the current week have revived fears of a much stricter lockdown to be imposed, bringing to halt the current softening in restrictions. This poses a challenge for the economy, as the fallout on GDP might be much deeper than initially anticipated.

“We expect the market to trade range-bound in the upcoming short-week as investors are likely to shy away from building fresh exposure ahead of Eid Holidays, and the announcement of the Federal Budget FY21 immediately thereafter,” he said.

Foreigners offloaded stocks worth $10.91 million compared to a net sell of $17.82 million last week.

Major selling was witnessed in commercial banks ($2.89 million) and power generation and distribution ($2.40 million). On the local front, buying was reported by individuals ($5.56 million) followed by mutual funds ($4.97 million).

During the week, Ferozsons gained 44 percent as the company announced agreement between its subsidiary and Gilead for manufacturing experimental drug Remdesivir.

Moreover, Pharma sector gained six percent during the outgoing week over anticipation of other companies to ink similar agreements.

Softening of lockdown announced by federal and provincial governments helped increase domestic business activity including opening of industries.

Another development which helped encouraged investors was Pakistan’s unchanged weight in MSCI EM index.

According to an analyst, recent spike in prices of food items seen in Ramazan might prevent the central bank from announcing an aggressive cut in rates, while the uncertain outlook on external account might also push the SBP to be cautious.

Sector wise positive contributions came from oil and gas exploration companies (192 points), cements (177 points), fertiliser (148 points), food and personal care products (61 points), and technology and communication (57 points).

Scrip wise major gainers were Fauji Fertilizer Company (74 points), Mari Petroleum (73 points), Lucky Cement (66 points), Nestle (59 points), and OGDC (56 points). Whereas, scrip wise major losers were Bank Al Habib (40 points), Sui Northern Gas Pipeline Limited (35 points), Allied Bank (20 points), Indus Motors (17 points), and Pakistan Tobacco (14 points).