KARACHI: Pakistan Stock Exchange witnessed only one trading session during the outgoing week as the market remained closed from Monday to Thursday on account of Eid-ul-Fitr.
During this single session, the stock market remained in grip of bearish trend due to across the board selling on investor concerns over PKR instability, rumours of policy rate hike in the upcoming monetary policy and political unrest in the country.
The benchmark KSE-100 index plunged by 408.60 points or 0.90 percent and closed below 45,000 psychological-level at 44,840.81 points. Trading activities also remained low as total daily volumes on ready counter decreased to 189.484 million shares as compared to 325.466 million shares traded on previous session while total daily traded value declined to Rs 5.661 billion against previous session’s Rs 9.290 billion.
BRIndex100 decreased by 53.62 points or 1.18 percent to close at 4,497.77 points with total daily turnover of 152.809 million shares.
BRIndex30 declined by 240.86 points or 1.47 percent to close at 16,095.36 points with total daily trading volumes of 100.454 million shares.
The foreign investors also remained net sellers of shares with net outflow of $1.158 million. Total market capitalization declined by Rs 76 billion to Rs 7.443 trillion.
On the current situation of stock market analysts say that the change of guard on the political front led to an initial relief rally at PSX (up 3.7 percent for the month at one point), as this was expected to bring back much needed attention and ownership of macro policies which had been missing in last few weeks, amidst the political noise. The initial relief rally however faced hiccups as political noise failed to die down while macro policies also remained unclear, resulting in the KSE-100 closing up 0.7 percent on month-on-month basis in April-22, taking 4MCY22 performance to plus 1.5 percent. April however, witnessed better participation with higher average volumes in earlier sessions taking the average trading to 40 percent on MoM, an analyst at JS Global Capital said.
“With PML-N now taking charge of the lower legislative house of Pakistan, the current government needs to show resolve and provide the market clarity on critical policy matters”, the analyst said. Just before the government changed hands, the State Bank of Pakistan (SBP) raised Policy Rate from 9.75 percent to 12.25 percent (up 250 bps), and had termed it ‘decisive’ to curb expectations of further hikes. The policy impasse has however meant that secondary market yields have continued to rise with KIBOR approaching 15 percent level in the last days of April-2022.
According to the analyst, the key fiscal challenge is rolling back subsidy on retail fuel prices announced by the outgoing government. While new government has stressed the need to remove these subsidies in a targeted manner, political compulsion and festive season constrained them from making a move as yet, resulting a subsidy of Rs 30/litre on petrol versus an earlier commitment to IMF to collect Rs 30/litre levy on the same. Swift action on the fiscal side is needed to keep rates and under control and also unlock respite on external front.
Last month’s balance of payments took a huge toll on SBP’s forex reserves, reducing by $4.0 billion to a 2-year low level to $12 billion over CAD of $1.0 billion and delay in debt rollover from China. The depletion continued in April-2022 as SBP reserves reach $10.6 billion, taking a toll on PKR movement against the US$ declining to its all-time low at Rs 188. The pressure can extend in coming months with recent Indonesian ban on palm oil exports and reported $4.0 billion additional scheduled payments by SBP in coming months.
Resumption of talks with IMF on their next visit to Pakistan in May-2022 has been welcomed with prospective extension of the program to June-2023 and enhancing it from $6.0 billion to $8.0 billion, the analyst said. In addition, friendly countries i.e. Saudi and UAE could also respond positively to the IMF program coming back on track. Sorting out the fiscal situation appears to be the first milestone to that end.
The result season for March-2022 quarter kicked off with improving results in the banking and OMC sectors, albeit flat/declining margin in the cement and steel sector. Sectors continue to feel the brunt of inflation and higher commodity prices as price increase announcements were witnessed in the Steel, Fertilizer and Autos. To recall, price increases in these sectors were also reported in March-2022, in addition to cement price increase.
“Though the fresh cabinet formation is somewhat similar to the previous tenure of PML-N (2013-2018), the ongoing stress on key economic dials suggests the upcoming budget should not necessarily be similar to PML-N’s previous pro-growth budgets”, the analyst said adding that the market would be able to grasp a clearer picture of the incumbent government’s economic policies in the Federal Budget FY23, which is reportedly to be announced in the first week of Jun-2022.
“We believe valuations of Pakistan market at sub 5x PE would to unlock as attention to corrective economic measures surface and begin to implement, making cyclical rebound off the lows a matter of when and not if. We reiterate our liking for banks, E&Ps and fertilizer where a combination of growth stories with dividend yields are on offer.”
Copyright Business Recorder, 2022
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