Stocks to play safe as economy remains a scare

Stocks were decimated in the outgoing week by a blitz of distressing economic data and badly hurt investors are unlikely to leave the safety of their bunkers anytime soon, despite Saudi inflows, traders said.

The KSE-100 Shares Index, the main gauge of country's capital market, closed at 43,233 points, losing 881 points or 2 percent week-on-week.

According to a report by Arif Habib Ltd, covering Pakistan Stock Exchange's weekly performance, Saudi funding inflows, expected anytime soon, might ease pressure on economy, giving the market a strong reason to rally, on top of helping arrest rupee slide.

“Keeping in view macroeconomic concerns, investors are expected to have a cautious approach. Albeit, we expect the market to be range-bound in the upcoming week,” the brokerage said.

Average volumes clocked in at 319 million shares, up 21 percent week-on-week, while average value traded settled at $90 million, up 51 percent week-on-week.

The market commenced on a positive note given the fall in the international oil prices amid an outbreak of Omicron, the new Covid-19 variant, subsiding concerns over inflation. Moreover, Saudi funding of $3 billion, due soon, also kept the sentiment high. Furthermore, the government paid Rs135 billion as a second installment to the IPPs under the 1994 policy, which further boosted the momentum in the power secctor.

In addition to this, Pakistan was reclassified to Frontier Market during the week, which is expected to spur foreign inflows. Imports for month of November 2021 posted a massive jump to $8 billion, up 94 percent month-on-month, taking the trade deficit to an all-time high of $5.1 billion, up three times month-on-month that triggered a bloodbath in the bourse, which suffered its worst single-day fall after 20 months. Panic further gripped the market as a more-than-anticipated CPI (Consumer Price Index) inflation figure of 11.53 percent year-on-year for November 2021, strengthened the case for another massive hike in upcoming monetary policy this month. To add insult to the injury, rupee depreciated to an all-time low of Rs176.77, which hit the morale like a wrecking ball.

Foreign selling continued this week, clocking in at $62.8 million compared to a net sell of $39.2 million last week. Major selling was witnessed in commercial banks ($27.2 million) and cement ($14.8 million). On the local front, buying was reported by companies ($25.7 million) followed by individuals ($16.0 million).

Sector-wise negative contributions came from technology and communication (198 points), cement (165 points), oil & gas exploration companies (101 points), textile composite (68 points), and food and personal care products (67 points). Scrip-wise negative contributors were LUCK (124 points), TRG (107 points), SYS (65 points), MARI (62 points), and POL (44 points).

Sectors that contributed positively were commercial banks (59 points), and oil & gas marketing companies (20 points). Meanwhile, scrip-wise positive contributions came from HBL (67 points), PSO (52 points), and UBL (40 points).

Other major events during the outgoing week were: Pakistan got downgraded from MSCI Emerging Index to MSCI Frontier Index; on the cutoff date of reclassification of November 30, foreign corporates net-sold $61 million (gross buy $41 million, gross sell $102 million); the federal government decided not to decrease prices of petroleum product on fortnightly basis and adjusted the prices of petroleum product by increasing petroleum levy. Moreover, there were reports that government had finalised a mini-budget involving fiscal adjustments and expenditure cuts worth about Rs600 billion as part of an understanding with the IMF to curtail demand in the economy.