Earnings to lift stocks amid fourth wave frets

Stocks are seen upwardly mobile, siphoning strength from earnings, given the highly transmissible Covid-19 variants remain in check and restrictions are eased to allow economic activities to resume, traders said.

Week-on-week, Pakistan Stock Exchange (PSX) was up 0.9 percent or 435 points to close at 47,490 points.

Analysts at Arif Habib Limited, a brokerage house, expect the market to continue trading in the green. The low interest rate regime and pro-growth stance of the SBP should keep equities attractive, they said.

Moreover, the result season should keep cyclicals in the limelight while reduced provisioning and healthy fee income/capital gains should help fuel banking earnings, according to the brokerage report.

“That said, Covid fourth wave is a concern that may keep sentiment jittery.”

There were rumors the Sindh government was planning to increase the Covid lockdown by another 14 days and an extension in the restrictions period may weigh on the market sentiment, Arif Habib Ltd analysts feared. Average volumes reached 455 million shares, up 12 percent week-on-week, while average value traded settled at $85 million, down 5 percent week-on-week.

The investment climate heaved a big sigh of relief when the trade deficit posted a 16 percent month-on-month decline as per official data. Moreover, with International Monetary Fund’s (IMF) $2.8 billion SDR (special drawing rights) allocation on cards, the reserves position is expected to consolidate further, which is significantly positive given uncertainty over the external account outlook.

Foreign buying this week hit $3.1 million against a net sell of $5.4 million last week. Buying was witnessed in technology ($1.8 million), cements ($1.3 million) and oil marketing companies ($0.2 million).

On the domestic front, funds sold equities worth $10.6 million and insurers $6.1 million.

The result season is ongoing and cyclical sectors are likely to post healthy earnings on a yearly basis driven by the V-shaped economic recovery.

Sectors that contributed positively were commercial banks (193 points), oil & gas marketing companies (52 points), and chemical-makers (52 points). Scrip-wise MEBL added 84 points, MCB 43 points, and HBL chipped in 41 points.

Main laggards were food & personal care and tobacco companies that knocked off 21 points and 7 points, respectively. Whereas, scrip-wise negative contribution came from LUCK (41 points), PSEL (36 points), and UNITY (19 points).

In the week Pakistan saved Rs2.1 billion on Qatar Petroleum LNG offer, K-Electric shared a revised investment plan with Nepra, foreign IMF board approved SDR allocation to improve global liquidity, and Tarin directed the food ministry to import two million tons of wheat.

Moreover, CPI (Consumer Price Index) based inflation eased to 8.4 percent year-on-year for the month of July 2021 compared to 9.7 percent recorded in June 2021, FBR reported it had collected net revenue of Rs413 billion during July, exceeded the target by Rs71 billion, foreign inflows in Roshan Digital Accounts reached $1.869 billion, and State Bank of Pakistan-held reserves increased $27 million to $17.8 billion.

Analysts say the Federal Board of Revenue should treat small and medium enterprises in terms of taxation in the same way as other industries. Ateeq Ur Rehman, an economic and financial analyst, said the manufacturing of furniture items and its exports were the astounding value additions.

Therefore, furniture-makers should be encouraged through tax and duty breaks on the import of raw material.