Market likely to remain range-bound till budget update

The capital market showed lacklustre performance owing to shortened week because of long Eid holidays, while lack of surprises on interest rate front and continuous selling from foreign fund houses squeezed the price run up, dealers said.

An analyst from Arif Habib said, “Provisional estimates of the National Accounts Committee suggest slowdown in GDP at a negative 0.4 percent during the ongoing year.”

Although investors struggle to find silver linings at present, expectations of a rebound next year (IMF forecasts GDP growth at 2 percent in FY21) marks the upcoming federal budget as a key event for the market.

“We believe commencement of economic activity amid ease in lockdown as well as growth boosting budgetary measures could potentially reinvigorate the market momentum post-Eid break,” he added.

Pakistan Stock Exchange (PSX) KSE-100 shares index shed 0.5 percent or 172 points to close at 33,837 points. Average volumes settled at 205.5 million shares, down by six percent compared to preceding week, while average value

traded clocked-in at $47.5 million up by 18 percent on week on week basis.

Brokerage BMA Capital Management said, “We expect budget proposals to drive the market sentiment. On the other hand, the number of COVID-19 cases is expected to surge after complete suspension of the lockdown.”

As per the ongoing situation, failure to implement SOPs might result in surge in cases, going forward. “As far as the market is concerned, we believe that the market is currently trading at attractive levels where we suggest gradual accumulation of fundamentally sound scrips to achieve significant gain in the medium to long run,” the brokerage said

An analyst from Habib Metro-Finance said, “The market is expected to remain range-bound without any significant triggers and the near-medium term direction is likely to hinge upon the pace of economic recovery and the Federal Budget FY21, scheduled to be announced on June 12.”

Macroeconomic numbers also raised concerns for foreign as well as domestic investors, as growth turned negative after 68 years. Support mostly arrived from the launch of Rs200 billion energy bonds, which would help companies in oil and gas sector to get some funds reducing some volume of the circular debt.

Moreover, ADB approval of $300 million for Pakistan to fight COVID-19 would help government reduce reliance on state funding.

According to data released by SBP, foreign direct investment soared 33 percent in April, compared to the same month of the previous year despite the pandemic, but plummeted 52 percent from the previous month.

Foreign investments are expected to sustain at the current level moving forward, as the country’s interest rates are still at an attractive level.

Rising COVID-19 cases, which have reached 52,000 across the country, present a significant risk to resumption of economic activity, as increase in confirmed cases could compel policy makers to quickly reinstate lockdown restrictions, a leading analyst said.

Sector-wise negative contributions came from commercial banks (162 points) as Moody’s placed five Pakistani banks on review for downgrade and adverse impact of rate cut on NIMs, fertilisers (114 points), and cement (95 points).

Scrip-wise negative contributions were led by Engro (52 points), Fauji Fertilizer (43 points), and MCB (36 points) whereas top gainers were oil and gas exploration companies (120 points) and food and personal care products (32 points).