PSX outlook sluggish as oil prices could smudge earnings

Pakistan stock market may stay subdued in the week ahead as a continued weakness in oil prices presents a major wildcard that could spoil any earning season’s cheer for the investors, dealers said on Saturday.

“Not much has been changed. Investors’ sentiment continues to be driven by international crude oil prices and performance of the regional market,” said KASB Securities. “Foreign outflows have prompted investors to adopt a more cautious approach, but we believe the earnings season will be the focus of investors in the coming sessions.”

Standard Chartered, last week, forecast the crude oil at $10/barrel on the prospects of additional supplies from Iran after the sanctions lift. In the last session of the week, the U.S. crude price reached 12-year low of around $30/barrel. The freefall in the oil has raised serious concerns about the world economies, which are enduring slowdown and some of them reeling under deflation.

Analysts said for whatever reason, volatile trade had been the theme pretty much at the Pakistani bourse ever since oil got under $35/barrel. The energy sector, the worst-performing of PSX, slumped over the time and there is a high risk that sliding oil prices could dent energy stocks further.

 "The oil story is not going away," said an analyst, adding Iran’s likely nuclear deal with the west will continue to push crude downward in the near-term. "Investors interpret lower oil prices as a weakness to the overall world economy and therefore if there's not a real strong demand for energy, the economy is getting weaker."

Last week, the PSX benchmark KSE 100-share Index slid 4.71 percent, or 1,533.36 points, to close at the nine-month low of 31,001.49 points. Average daily volume increased 10 percent to 131.4 million shares, while average daily value decreased five percent to Rs7.3 billion / $69.2 million. The market capitalisation also fell Rs320 billion to Rs6.56 trillion.

Friday was the tenth straight bearish session and the benchmark index lost a total of 2,227.46 points, or 6.70 percent, during these sessions.

“We expect the market to retain a bearish outlook next week, given the gloomy scenario in regional and global markets,” said a report by Arif Habib Limited. “We advise caution, but remain bullish on value scrips with sound fundamentals.”

Analysts said local investors were paying so much attention to the world economic developments that they shrugged off whatever little buying made by foreigners, who remained their source of inspiration most of the times.

Foreigners bought shares (in net) worth $1.21 million during the last week as against the sale of $11.25 million in the preceding week.

Analysts said the Federal Investigation Agency’s probe into brokers’ affairs will determine the PSX’s direction. Investors will follow the developments and take buying and selling decisions accordingly.