PSX weekly review: Bourse rallies on monetary policy clarity, optimistic outlook

• Benchmark KSE-100 index gains over 500 points to settle at 43,900.68 points during the week.
• Bulls keep their grip strong during the week owing to clarity regarding policy rate. 
• During the week the investors also remain cautious ahead of the mini-budget announcement next week.

KARACHI: The Pakistan Stock Exchange (PSX) remained highly volatile and ended the week in the green, despite closing negative in two out of five trading sessions. As a result, it gained 1.2% or 505 points, pushing up the benchmark KSE-100 index to 43,900.68 points.

Bulls retained their strong grip during the week owing to clarity about the policy rate coupled with the upbeat near-term outlook issued by the State Bank of Pakistan (SBP).

The week’s trading commenced on a negative note as investors awaited SBP’s stance amid anticipation of a massive hike in the policy rate. Resultantly, the index fell below the 43,000-point mark after a hiatus of nearly nine months.

However, the market recovered after the announcement from the central bank and closed the next two sessions (Tuesday and Wednesday) in the green.

It is pertinent to mention here that the central bank raised the policy rate by 100 basis points to 9.75%. However, investors rejoiced the single-digit policy rate and the expectations voiced by SBP’s Monetary Policy Committee that the monetary policy settings of the country will remain broadly unchanged in the near-term.

According to the monetary policy statement, the end goal of the mildly positive real interest rate on a forward-looking basis was now close to being achieved.

The development largely aided the KSE-100 index, which powered past the 44,000-point barrier on Wednesday as the market participants, who had kept their stock purchase decisions on hold before clarity about the direction of the policy rate, made fresh investments.

Unfortunately, the bourse failed to sustain the optimistic momentum and succumbed to selling pressure on Thursday as the oil and gas marketing companies remained under pressure on the back of the decision taken by the government to reduce the prices of petroleum products.

Moreover, continuous depreciation in the Pakistan rupee against the US dollar, coupled with uncertainty regarding current account data which is scheduled to be released next week and immune behaviour of cutoffs in T-bill auction mid-week, kept the investors jittery during the session and forced them to remain on the sidelines.

Nonetheless, despite all negative cues, the benchmark KSE-100 index closed the week in the green as the market regained some confidence on the last trading day when yields in the secondary market dropped in reaction to SBP's announcement of liquidity injection through open market operations (OMOs) for 63 and seven days.

During the week, the investors also stayed cautious ahead of the mini-budget announcement due next week which is expected to give the capital market a new direction.

Other major developments during the week were: large-scale manufacturing index output up 3.56% year-on-year in July-October 2021, Pakistan Refinery shut down due to weak furnace oil demand, inventory glut, the government slashed petrol and diesel prices by Rs5 per litre, the International Monetary Fund’s (IMF) projects gross debt clocked in at 83.4% of GDP, and Sui Northern Gas Pipelines (SNGPL) suspended gas supply to captive power plants.

Meanwhile, foreign selling continued this week, clocking in at $3.5 million against a net sell of $0.99 million recorded last week. Selling was witnessed in cement ($1.9 million), and technology and communication ($1.9 million).

On the domestic front, major buying was reported by companies ($5.1 million), followed by individuals ($2.7 million).

During the week under review, average volumes clocked in at 265 million shares (up by 30% week-on-week), while average value traded settled at $84 million (down by 13% week-on-week).

Major gainers and losers of the week

Sector-wise positive contributions came from cement (+282 points), technology and communication (+173 points), textile composite (+74 points), engineering (+70 points), and refinery (+50 points). On the flip side, negative contributions came from commercial banks (-208 points) and fertiliser (-17 points).

Scrip-wise major gainers were TRG Pakistan (+112 points), Lucky Cement (+111 points), Maple Leaf Cement Factory (+45 points), Systems Limited (+43 points) and Cherat Cement (+36 points). Meanwhile, major losers were MCB (-71 points), UBL (-63 points) and Meezan Bank (-29 points).

Outlook for next week

A report from AHL predicted: “We expect the market to remain positive in the upcoming week. With recent injection by the SBP via OMO for 63 days, money market yields are expected to come down further.”

“This is most likely to reignite investors’ interest in the stock market; furthermore, scrips have opened up to attractive valuations,” it said, adding that a mini-budget is expected to be announced soon, where the market is expected to react to any introduction, re-imposition or removal of duties and subsidies.

“The KSE-100 is currently trading at a PER of 4.7x (2022) compared to Asia-Pacific regional average of 14.9x while offering a dividend yield of 8.8% versus 2.2% offered by the region,” the brokerage house stated.