Stocks seen clawing back losses on rate, rupee stability

KARACHI: Equities lost more blood in week as bears mauled cements, autos, banks, and energies with ‘buying cues’ nowhere to be found amid a brewing political crisis; however, policy rate status quo and a steady rupee are likely to keep the index ticking, dealers said.

Pakistan Stock Exchange's (PSX) KSE-100 shares index fell 1.89 percent or 804 points to close at 41,701 points in the outgoing week, where it touched a peak of 42,551points and a low of 41,417 points.

Umair Naseer from BMA Capital sales desk said, “Considering unchanged monetary policy and stable rupee, fresh liquidity injections from local and foreign investors in the near to medium term coupled with the end of the rollover week are expected to rally optimism in equities”.

However, re-emergence of COVID-19 cases could result in a downside scenario for the market, Naseer said.

Brokerage Arif Habib Limited in a report said, “With economic indicators continuing to show improvement, we expect the profit-taking to be short-lived”.

“So far, Pakistan seems to be far from a second wave of the coronavirus.” However turmoil in international markets may continue to suppress sentiment in the domestic bourse, the brokerage house added.

Average volumes hit 466 million shares, down 13 percent week-on-week, while average traded value reached $82 million, up 11 percent.

Foreign investors sold equities worth $10.5 million compared to a net selling of $1.7 million last week.

Major selling was witnessed in cement ($6.1 million) and commercial banks ($3.8 million).

On the local front, major buyers were insurance companies ($9.1 million) and other companies ($7 million).

The index continued trading in the red zone for the outgoing week. Main concerns that kept investor sentiment bearish included a major selloff in international markets because of rising coronavirus cases internationally, particularly in Europe. Pakistan has also seen a rise in cases but that has been a result of a marked rise in testing (a high of 42,299 tests was seen on September 23). Infection rate has however continued to remain low, hovering around 2 percent.

Positive economic developments went unheeded because of the selling pressure owing to rollover week. In general terms the market would have been on an upward move, owing to a Current Account surplus witnessed for the second consecutive month, but it failed to uplift sentiment.

State Bank of Pakistan’s Monetary Policy Committee decided to keep policy rate unchanged at 7 percent in its September 21 meeting.

The central bank expects average inflation in FY21 to range within 7-9 percent and growth is projected to recover to slightly above 2 percent in FY21, after falling to -0.4 percent in FY20.

In last week’s treasury bills auction, government raised Rs520 billion where cut-off yields for three-, six- and 12-month papers were relatively unchanged, which showed trimming of interest rate cycle almost over.

Sector-wise negative contributions came from oil & gas exploration (267 points), commercial banks (180 points), power generation & distribution (81 points), cement (70 points), and technology & communication (61 points).

Positive contributions came from textile composite (11 points).

Scrip-wise negative contributions were led by OGDC (118 points), PPL (94 points), UBL (75 points), HUBC (73 points), and TRG (52 points).