Tumultuous trading was the norm at the Pakistan Stock Exchange (PSX) this week, as the index fell deep into the red amid lacklustre investor interest for the fourth week in a row, following the trend of the previous week.
In the week ending October 8, the benchmark index fell 349 points, or 0.88 percent, to close at 44,477.24 points, despite continuing pressure.
The negative trend was noticed as a result of a number of events that occurred throughout the week. Participants were alarmed by the increase in inflation, which reached 9% in September as a result of increased gasoline and food prices.
Concerns about monetary policy tightening in November owing to an increase in inflation also impacted on attitudes. Furthermore, the market was under pressure due to expectations for corporate results and ongoing staff-level negotiations between Pakistan and the International Monetary Fund (IMF) over the $6 billion loan package.
Despite the revelation of the Pandora Papers, an investigation into financial secrets held by high-profile persons throughout the world, trading began on a positive note on Monday, sending the index beyond the 45,000-point barrier.
Dismal trade data — indicating a 100 percent increase in the deficit to $11.7 billion in the first quarter of the current fiscal year — combined with a weakening currency dampened market mood on Tuesday, and the bourse failed to maintain its position in the 45,000-barrier.
As a decrease in cement sales soured market emotions, selling pressure remained as the benchmark KSE-100 index lost further ground on Wednesday.
On Thursday, however, the trend reversed, and the KSE-100 ended the day in the green, as investors took advantage of the rupee’s modest rebound versus the US dollar. Furthermore, a reduction in coal prices largely reversed the cement sector’s selling trend.
Due to the ongoing IMF review, the bullish momentum could not be maintained, and the bears made a comeback for the last session. Investors also kept a close eye on political developments when the administration chose to keep Shaukat Tarin on as a financial adviser to the prime minister after his term ended and until he became a senator.
Overall, investors were cautious this week, considering the IMF’s criteria and their impact on Pakistan’s economy. The IMF’s main condition for resuming the loan programme is an upward adjustment in power tariffs, as well as the elimination of subsidies and an increase in tax collections.
Investors believe that these actions, in part or in whole, will stifle corporate earnings growth in the next quarters, which will reflect in stock prices.
This week, foreign selling totaled $3.7 million, compared to a net sale of $21.85 million the week before. Commercial banks ($9.85 million) and fertilisers ($4.33 million) also saw sales.
Individuals ($7.13 million) and mutual funds ($3.61 million) made significant purchases in the United States.
The average volume moved during the week under review was 265 million shares, down 25% from the previous week, while the average value exchanged was $60 million (up by 21 percent week-on-week).
Major gainers and losers of the week
Sector-wise negative contributions came from cement (-268 points), fertiliser (-110 points), oil and gas marketing companies (-47 points), power generation and distribution (-30 points), and engineering (-25 points).
Scrip-wise major losers were Lucky Cement (-139 points), Fauji Fertiliser (-45 points), Pakistan Petroleum (-39 points), Cherat Cement (-38 points) and Sui Northern Gas Pipelines (-34 points). On the flip side, major gainers were Mari Petroleum (+144 points), UBL (+69 points), Searle (+41 points), Millat Tractors (+27 points) and Colgate-Palmolive (+26 points).
Outlook for next week
A report from Arif Habib Limited predicted: “Going forward, we expect the market to show positivity in the upcoming week attributable to the conclusion of talks with the IMF for the sixth tranche.”
“Moreover, a decline in infection ratio of coronavirus in Pakistan and slowdown in global oil prices would release pressure from an external account,” it said, adding, however, current macro-economic concerns like rising imports, higher inflationary reading due to increasing petroleum prices and pressure on currency could keep the market range-bound.
“The KSE-100 is currently trading at a PER of 5.2x (2021) compared to Asia-Pacific regional average of 14.4x, while offering a dividend yield of 8.2% versus 2.3% offered by the region,” the brokerage house stated.