ISLAMABAD: After a grueling 22-month period of stock market decline, where the index saw a significant erosion of 2,358 points, there are concerns that share prices in Pakistan will continue to face pressure. Several factors, including persistent inflation, the looming possibility of a substantial interest rate hike, a lack of clear economic policies, foreign investment trends, and stringent IMF conditions, contribute to the market’s uncertain outlook.
The KSE-100 index experienced its most substantial weekly decline in points since November 26, 2021, plummeting by 4.95%, equivalent to 2,358 points, and closing at 45,313 points. This decline marked the highest weekly drop since November 26, 2021 when the index fell by 5.11%, or 2,375 points.
Foreign investors continued to show interest during the week, with net purchases totaling $3.3 million compared to a net buy of $1.7 million the previous week. Notably, major foreign buying activity was observed in the Exploration and Production sector, amounting to $1.2 million, and the Technology and Communication sector, with $1 million.
Ahsan Mehanti of Arif Habib Corporation expressed concerns about the immediate future of stocks, citing investor apprehensions stemming from economic uncertainty driven by a weakened national currency and speculations of an impending interest rate hike due to high inflation.
Another contributing factor, according to Ahsan, is the anticipation of a downturn in share prices, as the government has hinted at its inability to provide subsidies and the ongoing, unresolved circular debt crisis in the power sector.
Afaaz Mustafa, CEO of Iqbal Ismail Securities, noted that the market’s trajectory will be influenced by several imminent events, including the monetary policy announcement on the 14th, the USD-PKR exchange rate, expected gas price hikes, and trade and current account data. Investors will closely scrutinize these figures to determine their future course of action.
Mustafa added that market participants are eagerly awaiting clear policy direction from the finance and energy ministries.
Weak Economic Indicators
Salman Ahmad Naqvi, Head of Institutional Sales at Aba Ali Habib, emphasized that the market has been significantly impacted by weak economic indicators. Factors such as the continuous depreciation of the domestic currency, hyperinflation, the threat of an increase in benchmark interest rates, and a widening current account deficit have contributed to the market’s challenges. He noted that the lack of positive news has intensified pressure on the local stock market.
Salman suggested that while the market is technically oversold, any positive catalyst could potentially push it into positive territory. However, he cautioned that a sustainable recovery hinges on improved economic indicators and positive signals.
Shahryar Butt, Head of Portfolio Management at Darson Securities, predicted that the stock market would likely remain range-bound and under negative pressure, with the index fluctuating between 44,500 and 46,000 points. He attributed this to the absence of positive developments and the ongoing depreciation of the rupee. The previous week witnessed significant losses, with the index shedding over 2,000 points, and the USD reaching a historic high of 305.47 against the rupee.
Shahryar highlighted the upcoming announcement of remittance figures, which may decline due to higher open market rates, encouraging overseas Pakistanis to use alternative channels for sending money. The disparity between bank and open market rates exceeds Rs 25 to a dollar.
He called upon the Finance Minister to engage with the brokerage community and provide insights into the gravity of the economic situation and the government’s plans to strengthen the economy. Shahryar emphasized that political uncertainty, stemming from ongoing tensions between the government and PTI, could further weigh on market sentiment. Additionally, public backlash over inflated electricity bills and rising petroleum product prices has become a growing concern.
Shahryar concluded that the market’s trajectory would be influenced by the State Bank’s monetary policy announcement, with this decision expected to dictate market dynamics.
Abdul Azeem, Head of Research at Spectrum Securities, predicted subdued market activity in the upcoming week, driven by economic and political uncertainties. Rising inflation, the fear of an interest rate hike, and the depreciation of the PKR against the USD are expected to impact market sentiment. However, a recovery in the PKR against the USD, lower inflation, and declining oil prices could provide support to the stock market.
Azeem advised investors to closely monitor stocks in the energy, banking, and cement sectors and consider long positions in stocks with high dividend yields and strong fundamentals.
Tahir Abbas, Head of Research at Arif Habib Ltd, emphasized that economic developments and decisions related to the upcoming general elections would be pivotal in determining market direction. Additionally, the ongoing results season could bring certain sectors and stocks into focus due to expectations of robust results.
