What was supposedly a “market-friendly” budget did not have enough to take the benchmark KSE-100 index to a sustained bull rally. Improving macro indicators, continuation of low policy rate with favorable forward guidance, and best-ever quarterly corporate earnings, could not do much either. The earning season is upon us once again and is expected to be another record shattering one. Will that move the needle remains to be seen. What surely does seem to be weighing is the Covid trajectory.
With the fourth wave here, and possibly just beginning, it does not appear it will be too soon before the index cracks the code to go beyond 48,000. Having hit a 4-year high on June 14 at 48,726, index has shed almost 3 percent. In 33 trading sessions since, KSE-100 has failed to reach 48,000, which has proved to be a major resistance.
All those years ago, 48,000 was not that tough a barrier, in fact offered good support around that level. That support now seems to have moved down to 47,000, tested at least twice. The fourth Covid wave could put that support to a sterner test, should restrictions get tighter and beyond Karachi. The relationship with long-term yield curve stays intact. Although, there is little to no chance of policy rate going drastically up, changes, if any, will be in the north direction.
Big guns have not fired yet, and that partly explains why the index has stayed range bound for quite some time. Most noise has been around penny scrips, as was seen in trading volumes last two months, where the All-Share index hit highest ever daily volumes. The big-ticket sectors commercial banks and oil & gas have both been sluggish since last year. These are in fact the only two sectors that have underperformed relative to the KSE-100 index. All others have outperformed the index to varying degrees. Since the index continues to be weighted heavily around banks and oil sectors, it will require either or both to perform, for the bulls to make a comeback.
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