Investors to remain cautious till budget

The capital market closed on a positive note during the outgoing week, but gains were limited due to pressure on the currency following sharp dip in foreign exchange reserves creating volatility in rupee as well as rise in COVID-19 cases.

An analyst from BMA Capital Management said, “All eyes are on budget FY21 next week, and investors are likely to remain cautious as depicted by market participation in the outgoing week.”

On the other hand, the alarming increase in COVID-19 cases might impact economic activity, going forward. As far as the market is concerned, “we believe that current trading multiples are at attractive levels where gradual accumulation of fundamentally sound scrips makes sense”, analysts said.

Pakistan Stock Exchange (PSX) benchmark KSE-100 shares index surged 1.3 percent or 419 points to close at 34,350 points during the outgoing week. Average volumes settled at 157 million shares, down by 27 percent on week on week basis. Average value traded clocked-in at $39 million, down by 27 percent week on week basis.

Analyst from Arif Habib Limited said, “With Federal Budget announcement scheduled for June 12, 2020, the market is expected to track budget related news flow.” Market performance for June 2020 remains critical, as during eleven months of the current fiscal year the index has delivered a return of 0.09 percent in rupee terms, the analyst said.

The market opened on a positive note this week, welcoming further ease in lockdown and opening up of several businesses with standard operating procedures (SOPs) in place. Moreover, rising oil prices, with revival of economic activity internationally, kept the E&P scrips under limelight.

Besides this, inflation for the month of May stood at 8.2 percent, in line with expectations while improvement in exports on a month and month basis also relieved investors.

Foreign selling continued this week clocking-in at $15.3 million compared to a net sell of $2.4 million last week.

Selling was witnessed in commercial banks ($5.0 million) and textile composite ($4.4 million). On the domestic front, major buying was reported by companies ($7.4 million) and mutual funds ($6.6 million).

Anticipation of relief reforms in Budget 2020-21 also kept the sentiment alive. However, rapid spread of COVID-19 cases and decline in foreign reserves by $1.67 billion reflected in rupee-dollar parity.

Expectations of tax cuts in the upcoming FY21 budget, relaxation in global and local lockdown helped bulls emerge as winners at the end of the week.

Apart from news on the macroeconomic front, provisional numbers of cement and fertiliser sectors were also unveiled during the week, showing weaker off-take due to Ramazan and Eid. Fertiliser and cement sectors should normalise going forward.

In the energy sector, finalisation of disbursement mechanism for recently raised Rs200 billion Sukuk was the key highlight during the week.

Sector-wise positive contributions came from commercial banks (401 points), oil and gas exploration companies (78 points), automobile parts and accessories (32 points), textile composite (25 points) and pharmaceuticals (19 points).

However, sector-wise negative contributions came from fertiliser (53 points), power generation and distribution (30 points), and insurance (25 points).

Scrip-wise positive contributions were led by MCB (110 points), United Bank (100 points), Pakistan Oil (66 points), Habib Bank (66 points), and Bank Al Habib (54 points).