Down 3.0pc in $ terms in Q1: KSE-100 Index up 1.0pc in PKR terms QoQ

KARACHI: Pakistan’s benchmark KSE-100 Index has registered a slight increase of 1.0 percent on a quarter-on-quarter basis in PKR terms, however, it is down 3.0 percent in USD terms in the first quarter of 2022.

Rising commodity prices, expanding Current Account Deficit (CAD) and increased political uncertainty continued to impact the market as returns remained muted during the quarter, an analyst at Topline Securities said.

Pakistan was not amongst the top or worst performers during this period. Turkey (up 25 percent) and Namibia (up 20 percent) were the best-performing markets during the quarter, whereas Russia (down 37 percent) and Sri Lanka (down 27 percent) were the worst-performing markets. These are total returns in USD terms.

In the first quarter of 2022, average daily traded volumes in the Cash and Ready market decreased by 58 percent on a year-on-year basis and 16 percent on QoQ basis to stand at 232 million shares. The average traded value also deteriorated by 69 percent on YoY and 29 percent on QoQ to Rs 7.3 billion/day during this quarter.

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The average volumes in the Futures market also declined by 36 percent on YoY and 13 percent on QoQ to stand at 99 million shares/day. The average traded value of the same declined by 69 percent on YoY and 25 percent on QoQ to Rs 3.7 billion/day.

“We saw only one IPO of Adamjee Life Assurance Company Limited (ALIFE) in the first quarter of 2021 where the company raised Rs 700 million at a strike price of Rs 28/share,” the analyst said adding that since the IPO, the stock is down by 30 percent.

Mutual Funds were the top sellers with net selling of $48 million followed by Foreign Corporates of $21.0 million, Insurance of $5.3 million and Brokers of $3.5 million. Banks, Companies and Individuals were key buyers with net buying of $41.3 million, $22.8 million and $5.8 million, respectively.

Key sectors that underperformed during the quarter were Refineries, Tobacco and Technology. The key sectors that outperformed were Fertilizer and Foods.

It is expected that market direction to be determined by a multitude of factors in the second quarter of 2022, the analyst said. These factors include:

Politics: Pakistan Politics has taken the center stage since the opposition moved a no-confidence motion against Prime Minister (PM), Imran Khan, on March 8, 2022. The opposition requires a majority of 172 members to get the no-confidence move passed. Voting is likely to take place by April 03, 2022. This has created uncertainty over the political outlook of the country and has also impacted market sentiments and volumes. There are also chances that early elections may be called in Pakistan. “If that happens then we may see a delay in decision making thereby further increasing economic challenges.”

Delay in release of IMF tranche and CAD outlook: “We believe political noise and clarity on the political outlook will remain key for market and economic outlook of the country. Pakistan is in talks with the IMF for the conclusion of the seventh review for the release of $1.0 billion. We believe that the political uncertainty could cast delays in the conclusion of the review program and release of tranche which remains a key risk,” the analyst said.

Net reserves with SBP have come are under severe pressure lately and it has fallen from a peak of $20 billion in August 2021 to $12 billion as of March 25, 2022. Current Account Deficit (CAD) has also surged to $12 billion in the first eight months of FY22 driven by higher imports led by an uptick in commodity prices. Consequently, Pakistan's currency has thus far weakened by 16 percent against the US dollar. “We expect CAD to clock in at $16-18 billion (4-5 percent of GDP) in FY22.”

Commodity prices: Sharp rise in commodity prices remained a key concern during the quarter. International Arab Light oil prices increased by 40 percent to $111.0 per barrel in the year 2022 to date. This not only exerts pressure on the external account but also results in higher inflation. “We believe that any respite on commodity prices will remain key for the economic outlook of the country and will be a key factor going forward.”

Key Monetary Policy Decisions ahead: There are two monetary policies scheduled during the next quarter that is on April 19, 2022, and June 10, 2022. This is seen as a key policy decision as secondary market yields have risen sharply recently since December 2021 with 6 months T-Bill and Kibor rates have risen by over 100bps to 12.37 percent and 12.52 percent respectively versus the policy rate which is at 9.75 percent since December 2021.

With the sharp rise in secondary market yields, increasing commodity prices, and rising CAD, an increase in the policy rate by at least 50-100bps could not be ruled out, he said.

Copyright Business Recorder, 2022