PSX to pick up on post-rains cyclical strength

Stocks crossed 41,000-point-mark after almost seven months on renewed institutional support and reduced foreign selling, amid healthy economic data, while more activity is expected in cyclical shares as rains will leave a lot to be reconstructed, dealers said.

Pakistan Stock Exchange’s (PSX) KSE-100 shares Index surged 3.62 percent or 1434 points to close at 41,056 points during the outgoing week.

The market recorded gains mainly on back of low-interest rates, ample liquidity, encouraging economic numbers, speedy development on infrastructure projects, and easing lockdown.

The sentiments further improved after the finance minister’s statement that based on current economic, fiscal, monetary and exchange rate policies, and on prospects for the international environment, economic activity was expected to rebound strongly within the first quarter of the fiscal year 2021 after the COVID-19 pandemic.

The participation level remained flat with an average daily volume of 439 million shares compared to 440 million shares in the previous week.

Brokerage Next Capital in their weekly roundup said, “Major contribution to total market volume came from TRG, PRL, and HASCOL, churning 53 million shares out of the total market volume of 239 million shares”.

Daily traded value for the index decreased to $36 million from $91 million, the brokerage said.

It said growth was visible in the first and second quarter following the opening of the economy.

“Following the end of the monsoon, cement and steel demand is likely to go up as construction and repair works will pick up,” the brokerage added.

An analyst said the fundamentals were strong, but the market needed some participation which was dampened by torrential rains in the city.

In the outgoing week the foreigner net-sold equities worth $0.8 million mainly in cements ($0.57 million).

Heavyweight sectors that led the rally were power generation and distribution up 4.8 percent, oil and gas marketing 5 percent and textile composite 6.8 percent.

Moreover, the news regarding allowance to increase drug prices also led the pharmaceutical sector to gain 4.7 percent during the preceding week.

State Bank of Pakistan reported a current account surplus of $424 million in July 2020 as trade balance and foreign inflows improved after the coronavirus lockdown was eased.

Central bank raised Rs 547.8 billion in the last week’s treasury bills (T-bills) auction, where the cut-off yield of 3-month and 12-month papers increased 0.16 percent and 0.15 percent, respectively.

This increase in the yield rekindled activity in the banking sector, denoting that chances of a cut in interest rate were over.

In the upcoming announcement of monetary policy, due sometime in September’s third week probably, the State Bank was likely to maintain interest rate at 7 percent.

The foreign exchange reserves held by the central bank increased 0.26 percent week-on week. Overall, liquid foreign currency reserves held by the country stood at 19.722.4 billion.

Urea sales jumped 24 percent to 575,000 tons in July 2020, from 465,000 tons in the same period last year, which helped generate some activity in the fertiliser sector.