ISLAMABAD: The outlook for Pakistan’s equity market in the upcoming week hinges on the appointment of a caretaker finance minister and the resolution of circular debt, a critical IMF requirement for fiscal discipline in state-run entities, and the ensuing installment. Notably, investor optimism remains strong due to favorable financial results and payouts.
Positive sentiment prevails with the gas circular debt resolution through a dividend plough-back scheme and the approval of the refinery policy. However, the absence of a finalized caretaker prime minister and finance minister led to sporadic bouts of profit-taking, impacting the KSE-100 index, which closed at 48,424, a decline of 0.3% from the previous week. The index made a high and low of 49,035 & 47,262 points during the outgoing week. Volumes clocked in at 206 million shares, falling by 29.2 percent, while traded value was reported at $42.7 million, a decline of 15% from a week ago.
Foreigner buying persisted, amounting to $2.9 million compared to last week’s net buy of $5.3 million. Major purchases centered around Commercial Banks ($1.8 million) and Exploration & Production ($1.5 million).
Market experts express confidence that the transition to a democratic setup, along with potential measures from the caretaker government to boost the economy, will strengthen investor confidence.
Salman Naqvi, head of equity sales at Aba Ali Habib, said the index to remain in the positive zone as political uncertainty ended, and in the next couple of days, the country to have a caretaker government. Smooth transition to a democratic setup to further strengthen the investors’ confidence. He said healthy payouts were expected from the power sector as the government aimed to trim circular debt.
Salman added that the caretaker government is expected to take such measures which would boost the economy to have a ripple effect on the stock market.
Notably, the expectation of healthy payouts from the power sector and efforts to reduce circular debt add to positive sentiments. It is expected that government to reduce energy circular debt by Rs 700 billion and also get the nod from IMF.
Focus on Circular Debt Resolution Directives From IMF
However, potential hurdles include uncertainty around IMF program targets and conditions in a low-growth economic scenario.
Investor attention remains focused on circular debt resolution directives from the IMF, as any slowdown could lead to selling pressure. Meanwhile, the market’s trajectory may be influenced by the appointment of a caretaker prime minister with financial acumen, inflation data, and potential petroleum price hikes.
In the forex market, the Pakistani Rupee is anticipated to range between 285-295 over the next two months. The recent decrease in yields has lessened the likelihood of a rate hike, with the rupee’s performance contingent on the caretaker government’s policies.
Overall, Pakistan’s equity market is poised to maintain a positive trajectory in the upcoming week, buoyed by the selection of a caretaker government, ongoing economic reforms, and promising corporate results.
Khurram Schezad, CEO of Alpha Beta Core, said that the market is likely to remain in the sphere of the volatile horizon as uncertainty circles around the team as well as the tenure of the caretaker setup. “Two reviews to fall in next eight months where conditions, as well as macro targets of the IMF program, appear to be difficult to achieve in the present low-growth and restrictive economic scenario,” he said.
Schehzad said that any investment commitments from Saudi Arabia, UAE, Qatar, and China under the new single-window SFIC in the coming months should keep the market vibrant and positive; otherwise, the index would remain volatile.
Faisal Dedhi, Deputy Head of Sales at Foundation Securities, said all eyes would be focused on a resolution of circular debt on directives of the IMF. However, any slowdown or deadlock on this issue would induce selling pressure.
KSE100 is poised to remain positive in the upcoming week; the optimism stems due to MSCI upgrading 15 Pakistani companies to its frontier market index while adding 41 new companies to its Frontier Market Small Cap Index, said Abdul Azeem, head of research at Spectrum Securities.
The IMF’s positive statement regarding dealing with circular debt management with the upcoming caretaker setup and IMF approval of the dividend plugin back scheme will have a further positive impact on the market. “ Additionally, the expected positive corporate financial results will also support the market. However, the uncertainties regarding the new upcoming caretaker setup, doubt regarding the circular debt management plan, deprecation of PKR, and rise in international oil prices can have a negative impact on the market”, said Abdul.
FOREX MARKET
Faisal Mamsa, CEO of Tresmark, said the forex market is liquid, and we expect the rupee to range between 285-295 in the next two months.
He added that the market was expecting Rupee to depreciate when the assemblies were dissolved, but nothing material happened.
Rupee did end the week lower (at 288.50/$), but that was mostly due to the long weekend in which there was a surge of imports and also because of a change in interest rate outlook.
“Yields have come down, so there is less possibility of any rate hike; much would depend on what kind of policies the caretaker government should introduce,” said Faisal.
