Stocks in free fall as monetary tightening weighs

Stocks on Tuesday remained in free fall for the second straight day as the rout triggered by a massive monetary tightening continued to stoke a panic-selling spree, traders said.

Pakistan Stock Exchange's (PSX) benchmark KSE-100 Shares Index registered a massive decline of 796.48 points to close at 44948.52 points.

Topline Securities in its daily market review noted that selling pressure continued at the bourse amidst 6-month KIBOR rates crossing 10 percent mark, which triggered a risk-off mode amongst investors.

The brokerage added that TRG led the losers and dented the index by 80.31 points; while SYS, LUCK, MEBL, and OGDC further dented the index by a cumulative 193.43 points.

Bearish sentiments ruled the market since the start of the trading; however a bloodbath erupted in the last trading hour, the brokerage added.

“Pakistan benchmark lending rates have been raised further, which is probably one of the toughest IMF programme condition with so many Prior Actions and more conditions likely for monetary and fiscal tightening,” said Mohammad Sohail, CEO Topline Securities.

On the economic front, Pakistan reached at long-awaited staff level agreement with International Fund (IMF) for the release of over $1 billion tranche as part of Extended Fund Facility (EFF), which investors were not sure about because of both sides’ taking too long to reach agreement.

However, policy rate hike by central bank as part of its monetary tightening overshadowed the Pakistan-IMF agreement, triggering negative sentiments in the market.

Brokerage Arif Habib Limited in post-trading note said bears ruled the trading floor as investors were unable to digest the hawkish stance of the last monetary policy, which resulted in double digit six-month KIBOR.

“Hefty increase in the finance cost of leveraged businesses will eventually lower profits as major portion of borrowing comes from the KIBOR-led lending.”

The second day of roll-over week also came under pressure as investors took a cautious stance and opted for squaring off roll-over positions, the brokerage added.

Arif Habib Corp’s Ahsan Mehanti said foreign outflows, dismal data on LSM growth in September FY2021, and likely new IMF conditions calling for higher power tariff and taxes before the release of next tranche dragged the stocks down. Trading volume increased 23 million shares to 264.60 million compared to 261.90 million a day earlier, while traded value dropped to Rs9.728 billion from Rs10.940 billion. Market capital declined to Rs7.715 trillion from Rs7.839 trillion.

JS Research in its market wrap said stocks witnessed another bloodbath with overall investor participation remaining sluggish amid ongoing rollover week.

“Going forward, market may likely consolidate amid uncertainty and lack of positive triggers, therefore, investors are advised to wait for dips in the market to take position in blue chip stocks mainly Banking, Fertilizer and Power sector,” the brokerage added.

Sapphire Fiber nailed the best gains of the gay by rising Rs.59.97, followed by Gatron Industries that secured Rs.35.47.

Unilever Foods being the worst loser shed Rs499/share, followed by Nestle Pakistan, down Rs139.99.

TRG Pakistan, Worldcall Telecom, Byco Petroleum, G3 Technologies, Hascol Petrol, Ghani Global Holdings, TPLP, Fauji Foods, Treet Corp, Telecord Limited also recorded notable turnover. Turnover in future contracts increased 57 million shares to 221 million from 164 million shares.