Stocks stage muted recovery as rate cut makes no big noise

Stocks on Friday made a muted comeback despite a 100 basis points surprise rate cut by State Bank of Pakistan (SBP) in thin trade, largely because investors are reluctant to jump in before seeing some green shoots of growth sprouting in the economy of the country, dealers said.

Pakistan Stock Exchange’s (PSX) benchmark KSE-100 shares index gained 0.68 percent or 229.86 points to close at 33,939.49 points, while KSE-30 was up 0.85 percent or by 123.44 points to end at 14,680.15 points level.

Saad Rafi, head of equity sales at Al Habib Capital Markets, said, “Market closed on positive note due to further lowering of interest rate, which helped a fresh rally in cement and steel stocks”.

“A cut in benchmark interest rate was expected and an overall there has been a reduction of around 6.25 percent from its peak of 13.25, only because of COVID-19’s devastating effects that are not letting the economy to pick up,” Rafi said. He added that the market would remain dull as long as economy was subdued. “The index was expected to take a big jump following the cut, but sectors like oil ang gas and banks did not perform well owing to lower interest rate and lower local/ international oil demand, respectively,” Rafi added.

Of 339 active scrips, 169 gained, 149 lost, and 21 remained unchanged. Volumes improved to 198.187 million shares, as compared to 168.429 million shares on Thursday.

Tahir Abbas, head of research at Arif Habib Ltd, said, “Leverage stocks like cement and steel came on investors’ radar following the rate cut by State Bank on Thursday by one percent”.

Given the COVID-19’s impact on the economic activities, State Bank took this step to provide assistance to business segment, Abbas added.

Zia Shaafi, senior investment adviser at Intermarket Securities said, “The market made gains taking cue from further monetary easing, but in several scrips the activity was range-bound owing to year-end closing”.

Shaafi further said because of year-end closing several institutions stayed out of the market, while some are facing liquidity issues, which is why the equities showed minimal gains.

“With the year ending closing and future contract settlement over, the market is likely to show healthy recovery next week,” he added.

Analyst Ahsan Mehanti from Arif Habib Corporation, said, “Stocks closed bullish led by selected scrips across the board after SBP’s surprise rate cut by 100bps to support economic recovery and leverage the corporate sector”.

Bull run in global stocks on easing US-China trade tensions, surging global crude oil prices, rupee stability, amid $13 million current account surplus in May 2020, gave equities an upward thrust at the PSX, Mehanti added.

The top gainers were Premier Sugar, up Rs33.68 to close at Rs485.37/share, and Service Industries Limited, up Rs32.09 to finish at Rs790.75/share. Pakistan Tobacco, down Rs16.92 to close at Rs1,510.09/share, and Pakistan Engineering, which shed Rs10.79 to close at Rs133.11/share, were the main losers.

Maple Leaf Cement recorded the highest volumes with a turnover of 15.199 million shares, gaining Rs1.06 to end at Rs25.94/share. K-Electric Limited’s turnover was the thinnest with 5.273 million shares, whereas the scrip lost Rs0.01 to end at Rs2.89/share.