Stocks to play safe in the run-up to budget

KARACHI: Stocks are seen risk-averse ahead of the federal budget 2022-23, which stakeholders at large fear to be a nightmare for businesses and consumers, traders said.

Week-on-week, KSE-100 Shares Index at Pakistan Stock Exchange (PSX) shed 1,547 points or 3.6 percent to close at 41,315 points. Average volumes clocked in at 210 million shares, while average value settled at $30 million, down 23 percent week-on-week.

“The market is expected to remain range-bound until the announcement of the Federal Budget 2022-23, scheduled for June 10, June 2022. The outcome of the budget presented will determine the market direction in the future,” said an analyst report of Arif Habib Ltd.”

Moreover, the government may opt to roll back the remaining subsidy on petrol and diesel next week, which might further ignite inflationary concerns.

“All said, one positive development the market will be looking forward to is the inflow from Chinese banks (about $2.3 billion) which, according to finance minister, is due shortly,” the brokerage said.

Following the decision of partial removal of subsidy on petrol and diesel by increasing the prices by Rs30/litre each, the market commenced on a positive note this week in hopes of resumption of the IMF programme, as these measures are deemed to be a prerequisite for the Fund’s approval for the seventh review.

As a result, rupee staged a recovery against the greenback, closing at Rs197.92 this week. However, concerns over inflation, which reached a 28-month high of 13.8 percent in May 2022, and an uptick in government securities yields in the T-bills auction, dampened the sentiment at the index.

Moreover, the jump in NSS rates by 150 basis points and the expected hike in power prices by Rs7.91/unit sent alarm bells ringing.

Meanwhile, Moody’s Investors Service downgraded Pakistan’s outlook from stable to negative which plunged the market in panic on the last day of the week, while the second hike in petroleum prices another Rs30/liter further fueled inflationary concerns.

The capital market saw a foreign selling of $0.42 million compared to net selling of $1.51 million last week.

Major exits were made by banks ($4.2 million) and cement ($0.4 million).

On the local front, buying was reported by individuals ($5.6 million) followed by companies ($5.6 million).

Sector-wise negative contributions came from commercial banks (363 points), cement (309 points), fertiliser (163 points), technology & communication (124 points), and chemical (93 points). Major stocks that dented the index big time included LUCK (141 points), HBL (129 points), FFC (87 points), TRG (68 points), and EPCL (55 points).

Sectors that underpinned the market included vanaspati & allied industries (1 point). The major point-gaining names were POL (13 points), ABOT (10 points), MARI (9 points), SCBPL (6 points) and COLG (6 points).

JS Research said Moody's downgrade of Pakistan outlook from 'stable' to 'negative' dampened the sentiments of the already hesitant investors on the last trading session of the week.

However, the government finally took tough measures this week for the restoration of the IMF programme, reflecting the decision of hiking POL prices through withdrawal of PDC and an increase in electricity tariff, the brokerage said.

The auto sector was among key underperformers this week over the bleak outlook of the sector. Other underperformers included cement and glass sectors due to negative growth expected in FY23 as the second-round impact of inflation would kick in.

On the news front, cut-off yields showed an increase of 55-75 basis points as compared to the previous cut-off during the T-Bill auction held in the outgoing week.

Moreover, the government also raised rates of some saving schemes in the range of 30-150bps. On the external front, central bank reserves declined to $9.7 billion, while the trade deficit for May 2022 further widened by 11.5 percent year-on-year.