IMF loan to set market trend

International Monetary Fund’s (IMF) loan approval is going to set the market direction down the line as the government has met most of the terms dictated by the 'lender of the last resort', traders said.

The benchmark KSE-100 Shares Index closed at 46,489 points, climbing up by 740 points, up 1.6 percent week-on-week.

Brokrage Arif Habib Ltd in its weekly market wrap said as monetary policy has finally been announced, the market as of now was expected to react accordingly next week.

It said the recent bill to make SBP autonomous, as well as the latest monetary stance, should now effectively remove another precondition of the IMF.

“Therefore, we believe market sentiment now hinges upon the announcement of the IMF package in Pakistan’s favour,” the brokerage said adding, “Once through, the market is likely to post a rebound”.

In the outgoing week, equities started off on a negative note because of uncertainty over IMF loan disbursements and mounting inflationary pressure but gained momentum with the government agreeing to pay Rs190 billion to IPPs (Independent Power Producers) and petroleum prices status quo.

However, pressure returned owing to the noise the SBP could raise the policy rate by a 100 basis points (bps). Nonetheless, against the market expectations, the central bank tightened the monetary policy by 150bps. This higher-than-expected hike was largely a result of a worsening current account deficit number that increased to $5.1 billion in 4MFY21, against a positive balance of $1.3 billion last year. Banking sector, however, rallied on the day of monetary policy meeting. Alpha Adhi Securities in a note said the SBP raised policy rate by an unanticipated 150bps to 8.75 percent in its November 2021 monetary policy statement to cope up with the rising risks related to inflation, balance of payment and rupee depreciation.

The SBP also increased the frequency of monetary policy meetings from six to eight times a year in order to closely follow the changing economic situation and take decision prudently, the brokerage said adding that next meeting was now scheduled for December 14, 2021.

“Hike of 150bps strikes the right balance,” the SBP Governor said. The same also aligns with market expectations as being reflected in the secondary market yields which were up 100-150bps even before the revised announcement of Monetary Policy Committee meeting.

Average volumes clocked in at 245 million shares, down 23 percent week-on-week, while average traded value decreased 17 percent to $53 million week-on-week.

Foreign selling continued this week, clocking in at $25 million compared to a net sell of $5.3 million last week. Major selling was witnessed in commercial banks ($14.7 million) and fertilisers ($4.7 million). On the local front, buying was reported by insurance companies ($13.5 million) followed by other companies ($7.7 million).

Sectors that supported the index included banks (403 points), fertilisers (172 points), cement (158 points), exploration and production (140 points), and power (43 points). Scrip-wise positive contributors were MEBL (96 points), LUCK (76 points), UBL (73 points), PPL (72 points), and MCB (71 points).

The laggard sectors included technology (-176 points), and FMCG (-41 points). Stocks that shed gains were TRG (233 points), UNITY (32 points), and PSX (16 points).

During the week, the government decided to pay IPPs Rs190 billion as equity of Discos, remittances clocked in at $10.6 billion in July-October, and FDI declined 12 percent in 4 months.