Bears reign at PSX for fourth week as benchmark index falls 349 points

• The benchmark index fell 349 points or 0.88% in the week ended October 8 amid persistent pressure, to settle at 44,477.24 points.
• Talks with IMF officials, fluctuating rupee-dollar parity keep investors cautious.
• Going forward, we expect the market to show positivity in the upcoming week, Arif Habib Limited reports.

KARACHI: In line with the trend in the preceding week, tumultuous trading remained the norm at the Pakistan Stock Exchange (PSX) as the index slid deep into the red amid weak investor interest for the fourth successive week.

The benchmark index cumulatively dropped 349 points or 0.88% in the week ended October 8 amid persistent pressure to settle at 44,477.24 points.

The downward trajectory was seen on the back of various developments that unfolded during the week. Participants reacted negatively to the surge in inflation, which skyrocketed to 9% in September on the back of rising fuel and food prices.

Concerns about the further tightening of the monetary policy in November due to an uptick in inflation also weighed on sentiments. Moreover, the expectation of corporate results and ongoing staff-level talks between Pakistan and the International Monetary Fund (IMF) over the $6 billion loan programme also kept the market under pressure.

On Monday, trading kicked off on a bullish note, pushing the index above the 45,000-point mark despite the release of the Pandora Papers — an investigation uncovering financial secrets held by high profile individuals across the world.

Things took a turn for the worse on Tuesday as dismal trade figures — showing that the deficit widened 100% to $11.7 billion in the first quarter of the current fiscal year — coupled with a depreciating currency dented investors' sentiments and the bourse failed to sustain its position in the 45,000-barrier.

Selling pressure persisted as the benchmark KSE-100 index lost further ground on Wednesday as a drop in cement sales soured investor sentiments.

However, the trend reversed on Thursday and the KSE-100 closed positive as investors took a cue from the partial recovery of the rupee against the US dollar. Moreover, a drop in coal prices primarily reversed the selling tide in the cement sector.

Unfortunately, the positive momentum could not be sustained and the bears made a comeback for the final session due to the ongoing IMF review. Investors also kept a close watch on political news after the government decided to continue to avail the services of Shaukat Tarin as an adviser to the prime minister on finance after his tenure ends and till the time he becomes a senator.

Overall, investors traded cautiously during the week, weighing the conditions of the IMF and their impact on Pakistan’s economy as a major condition from the IMF for resumption of the loan programme is an upward revision in electricity tariff, besides an end to subsidies and increase in tax revenues.

Investors believe these measures in part or whole are expected to dent earnings growth of the corporate sector in the coming quarters, which is reflecting on stock prices as well.

Other major developments during the week were: cement sales declined by 6% during July-Sept, the central bank announced new steps to curb dollar outflows, and the State Bank of Pakistan (SBP) held a T-Bill auction this week in which cut off rates increased by 21bps and the SBP reserves declined $125 million to $19.16 billion in the week ended October 1, 2021.

Foreign selling was witnessed this week, clocking at $3.7 million against a net sell of $21.85 million recorded last week. Selling was witnessed in commercial banks ($9.85 million) and fertiliser ($4.33 million).

On the domestic front, major buying was reported by individuals ($7.13 million) and mutual funds ($3.61 million).

During the week under review, average volumes clocked in at 265 million shares (down by 25% week-on-week), meanwhile average value traded settled at $60 million (up by 21% 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.