After IMF deal, politics to keep stocks on edge

Stocks remained higher during the outgoing short week, with market expected to behave positively in the week ahead on account of staff-level agreement with the International Monetary Fund (IMF), analysts said on Saturday.

“With Pakistan and IMF reaching a staff-level agreement, the government plans to raise funds worth $9 billion-$10 billion from international financial institutions such as World Bank, Asian Development Bank and Islamic Development Bank, which will help build-up reserve,” said a report by Arif Habib Limited. “Albeit, we expect the market to be positive in next week. We recommend the investors to cherry-pick the scrips.”

The three-day week commenced on a positive note given the government reached a staff-level agreement with the IMF, which would enable the disbursement of $1.2 billion under the Extended Fund Facility subject to the approval of the IMF’s executive board.

Along with the IMF news, the market also responded positively to Prime Minister Shehbaz Sharif’s approval for slashing petrol by Rs18.5/litre and diesel by Rs40.54/litre.

On domestic currency front however, rupee depreciated against the dollar after posting a brief recovery following the announcement of the IMF deal. It closed at Rs210.95/dollar, leading to a bearish momentum on the last trading day of the week.

The index went up 1.8 percent week-on-week, gaining 731 points to close at 42,075 points level.

Average volumes clocked in at 178 million shares (up 97 percent WoW) while average value traded settled at $31 million (up 108 percent WoW).

The outgoing week also witnessed foreign buying of $1.4 million, lower compared to net buying of $1.63 million last week.

Major buying was witnessed in all other sectors ($0.43 million) and banks ($0.36 million). On the local front, selling was reported by banks/development finance institutions ($1.43 million) followed by insurance companies ($1.13 million).

Sector-wise positive contributions came from commercial banks (194 points), cement (99 points), technology and communication (93 points), fertiliser (85 points) and oil and gas exploration companies (82 points).

Scrip-wise positive contributors were Meezan Bank (84 points), Systems Ltd (70 points), Pakistan State Oil (53 points), Lucky Cement (45 points), and Pakistan Petroleum Limited (39 points).

Sectors which contributed negatively were automobile assemblers (22 points) and pharmaceuticals (9 points). Stock-wise negative contributions came from Colgate (17 points), Abbott Laboratories (15 points), Millat Tractors (10 points), Pakistan Oilfields (10 points), and EFU General Insurance (9 points).

Analyst Faisal Irfan at JS Research said investors celebrated the resumption of the much-awaited IMF programme, as Pakistan reached the staff level agreement for the release of $1.17 billion. “Moreover, the size of the programme also increased by $1 billion to $7 billion, extending the programme to June 2023, subject to approval from the board,” he added.

Along with this, international oil prices remained volatile, where Brent Crude touched a recent low of $94.78 per barrel (September contract) before closing the week at above $100 per barrel. In order to pass on the impact of a decline in international oil prices and provide relief, petrol and diesel prices were also reduced in the country.

All these positive developments overshadowed the 125bps increase in the country’s policy rate last week.

During the week, the State Bank of Pakistan raised markup rates on Export Finance Scheme, Long Term Financing Facility, May FCA; K-Electric was granted approval for Rs9.52/unit tariff hike; Morinaga Milk sought to increase share in NMPL; PIA inducted second Airbus 320 aircraft into the fleet; and the Federal Board of Revenue projected 9.5 percent tax-to-GDP ratio.