Political standoff looms over corporate earnings season

Political standoff in Punjab is likely to be an obstacle next week, but some investors expect company earnings and economic data to play a greater role in moving stock prices.

“The market is expected to be positive in the upcoming week,” brokerage Arif Habib Ltd said in a weekly market report. “With the commencement of result session next week, certain scrips are expected to remain in the limelight. Moreover, scrips are trading at cheap valuations, which may revive the momentum.”

Nabeel Haroon, an analyst at Topline Securities said the decline in the market can be attributed to increase in political uncertainty following Punjab by-election where opposition party PTI gained a majority of the seats. “This has resulted in increased vigour in PTI`s call for early election at an all-important time when government has to fulfill IMF precondition before the IMF executive board meeting.”

The rupee continued to depreciate during the week, reaching an all-time low of Rs228.37 against the dollar amid depletion of foreign reserves and uncertainty over funding from friendly countries. Moreover, IMF is assessing which friendly countries are willing to provide financial aid to Pakistan before disbursing the loan of $1.2 billion.

“Given the situation, the pressure was felt by the market, taking the index below 40,000 points. In addition to this, Fitch downgraded Pakistan’s rating outlook to negative,” Arif Habib Ltd report said.

However, a slight rebound trade was observed on the last trading day.

The market closed at 40,077points, losing 1,998 points week on week. Average volumes clocked in at 163 million shares -- down by 8 percent week on week, while average value traded settled at $21 million -- down by 31 percent. The benchmark KSE-100 Index declined 4.75 percent during the week.

Some foreign buying was witnessed during the week, clocking in at $3.43 million compared to a net buy of $1.40 million last week. Major buying was witnessed in technology ($1.98 million) and all other sectors ($0.75 million). On the local front, selling was reported by mutual funds ($7.76 million) followed by insurance companies ($2.22 million).

Sector-wise negative contributions came from commercial banks (499 points), fertilizer (294 points), cement (245 points), oil & gas exploration companies (187 points) and power generation & distribution (110 points). Stock-wise negative contributors were HBL (152 points), LUCK (92 points), ENGRO (92 points), EPCL (91 points) and HUBC (90 points).

Whereas, sectors which contributed positively were sugar & allied industries (3 points) and closed-end mutual funds (2 points). The scrip-wise positive contribution came from SML (3 points), HGFA (2 points), HINOON (2 points), MUREB (1 point) and DCR (1 point).

Muhammad Waqas Ghani, an analyst at JS Research, said a delay in clarity over the IMF program and political uncertainty introduced after the by-elections in Punjab took a toll on the equity markets.

“Negative sentiments were fueled by consistent depreciation of rupee against the greenback, closing at its all-time low of 229 this week,” he said.

In other news, Fitch downgraded its outlook on Pakistan to negative following Moody's, which had demoted the country last month. On the other hand, Finance Minister Miftah Ismail conducted a press briefing during the week to control damage and assured that the government would be able to manage the funding gap of $4 billion soon with the help of friendly countries and that the IMF program is on track. Moreover, according to data released by SBP, foreign exchange reserves decreased 4 percent on a weekly basis.