ISLAMABAD: The Pakistan Stock Exchange (PSX) made new heights during the outgoing week, and analysts attributed the gains mainly to political stability and improvement in key indicators to strengthen the run-up. The Index’s next target has been 51000 points level, with most of the investors expected to adopt a cautious approach ahead of the monetary policy announcement consensus build of status quo, but surprise cannot be ruled out.
The domestic currency closed at Rs 278.8 against the greenback, depreciating by Rs 1.18 or 0.42%. The market closed at 50,732 points, gaining 1,238 points or 2.5%. Foreigner buying was witnessed during the preceding week, clocking in at $2.3 million compared to a net buying of $1.4 million last week.
Major buying was witnessed in Commercial Banks amounting to $1.9 million and Technology & Communication $0.9 million. Average volumes arrived at 405 million shares, up 8%, while the average value traded settled at $45 million, up 13%.
Faisal Dehdi, Deputy Head of Institutional Sales at Foundation Securities, said next week’s biggest challenge would be monetary policy announcement.
Though the retail investors believed that a cut in interest rate was possible, in our opinion, the State Bank will maintain a status quo policy as soon as the country enters talks with the IMF for the next tranche.
He said fundamentals are strong and sentiments have been bullish, which heralded in the preceding week where good volumes were witnessed, and the Index crossed the 50,000 points level after six years and closing also recorded over 50,500 points.
Faisal said there is nothing wrong with the market, but the status quo from SBP might yield a correction of 1,000 to 2,000 points, which has been healthier for the market.
“We expect a sizable cut in the interest rate in the first quarter of 2024 after inflation starts to fizzle out to 18 to 20 percent,” he said. Going forward, the Index might move from 50,500 to 51,400 with healthier volumes. Top picks are from the oil and gas sector as before going for talks with the IMF, the government might raise gas prices, and notification will be released soon, Faisal said.
“The recent surge in PSX can be attributed to the decline in petrol prices, sparking optimism that inflation has reached its peak and anticipating future reductions in interest rates”, said Ali Nawaz, CEO Chase Securities
Investors’ Confidence in Economy
Additionally, the crackdown on smuggling and Afghan transit trade has bolstered the currency, fostering increased confidence in the economy.
He said that looking ahead, upbeat corporate results, attractive valuations, and the successful review of the IMF program are expected to contribute to a more positive market sentiment. Furthermore, potential reforms in the gas sector could act as a catalyst in the upcoming week.
Shahryar Butt, portfolio manager at Darson Securities, said that positive numbers arriving on the economic horizon have boosted the investment in the stock market and the confidence of the general investors.
“Key indicators are showing positive signs like curbing current account deficit at $8 million in September, SPI moving down on a weekly basis and strengthening of rupee paving way possible interest rate cut”, he said.
“We expect on October 30 monetary policy announcement interest rate to see a trimming of 100 to 200 basis points from present 22 percent”, he said.
Moreover, we are also expecting a rise in gas prices, which would help the government to fulfill one of the key compliances of the IMF, qualifying for the next tranche to be approved in November.
However, Shahryar said that the government should now focus on the foreign investment front, as FDI has not been picking up. They should also adopt such measures, which could curtail losses at state-run enterprises, eating up state revenues, speedy reforms, and privatization for the overall economy and strengthening fundamentals.
“We anticipate the market to continue to ride the wave of positive momentum in the upcoming week, amid expectations of gas price adjustments to address the circular debt issues”, said Abdul Azeem, head of research at Spectrum Securities. Along with this, the results of certain scripts are expected to further fuel the positive sentiment of the market.
Tahir Abbas, head of research at Arif Habib Ltd., said that the KSE100 is poised to remain positive next week, as the rupee is expected to appreciate further next week, anticipation of positive corporate result announcements and a decline in weekly inflation can have a positive impact on the market.
However, the possibility of an increase in gas prices as the IMF pressurizes the government and an increase in international oil prices due to the Palestine/Israel war escalation can have a negative impact on the market. “We suggest investing in high dividend yield and fundamentally strong stocks”, he said.
Forex Market
“The FX market sighed with relief as the Goldilocks Zone (275-285) remained intact. USD/PKR bounced off the 275 level & surged to 282 on the back of imports related to the public sector, although the real reason could be to break the monotony of a-Rupee-a-day rise, said Faisal Mamsa, CEO Tresmark.
The rupee closed the week at 278.80, but it looks to remain range bound till at least the next tranche of IMF is finalized. At the same time, there will be a wobble at the time of the upcoming monetary policy on October 30. In the last T Bill auction, cut-offs decreased by 30-45 bps in 3, 6 & 12-month paper, and a rate cut could put some pressure on the rupee, he said.
“We may see the Goldilocks Zone put to the test,” Faisal said. If the IMF tranche moves ahead successfully (by early next month), we may see the rupee heading towards the 270 level by mid-November and may even see interest rates clipped by 100-200 bps before the end of this year, he explained.
