ISLAMABAD: The equity market in Pakistan to show range-bound activity on the back of higher inflation numbers expected following a substantial rise in petroleum product prices and political developments keep real investors at bay, with trading mostly likely to be restricted to oil and gas exploration group in the wake of gas price rise.
Pakistan Stock Exchange closed at 45,754 points, declining by 260 points or 0.6% during the outgoing week. Foreigner selling was witnessed this week, clocking in at $9.7 million compared to a net buy of $ 0.6 million in the preceding week. Average volumes arrived at 161 million shares, up by 10 percent on week on week basis, while the average value traded settled at $ 21 million, up by 21%.
Muhammad Rizwan, Khan an analyst from Chase Securities said that during the outgoing week, some optimism emerged at the beginning of the week with the news of UBL bank selling its stake in its UK operations to Bestway Group. This move provided a slight boost to UBL’s share prices. There were positive developments related to the monetary policy meeting in the hope of inflation to ease and a better-than-expected crop yield where the State Bank decided to maintain the current policy rate.
Throughout the week, certain companies delivered strong financial results, such as Hub Power, which declared a year-end dividend of 6 rupees per share. This prompted investors to establish new positions in the stock.
He said that additionally there was a notable improvement in the current account deficit which has decreased to $160 million. This represented a significant 79% decline compared to the $774 million recorded in August 2022, contributing to the stabilization of the rupee at its current exchange rate.
The Petroleum Division has resubmitted a proposal for a 50% increase in gas prices, aligning with the demands of the IMF (International Monetary Fund). Next week, the news of a potential gas price hike will likely take center stage, and we can expect broader participation in cyclical sectors to increase.
Uncertainty Due to Political Circumstances in Pakistan
Salman Ahmad, head of institutional sales at Aba Ali Habib, said that uncertainty due to political circumstances and about current action against foreign exchange hoarding, smugglers, and manipulators, whether it is permanent or not or just cosmetic surgery. He said that fundamentals are strong where a major supporting factor has been recovery made by domestic currency and SBP decision to keep interest rate unchanged. Salman said that investors had been perturbed about the current recovery in the rupee as they feared that the measures to curb smuggling and crack down on illegal exchange companies are the key factors. How long the government runs this crackdown, following the halt, will the rupee again be on the losing track, hitting the economy. These all happen to keep the market in range-bound territory.
Shahryar Butt, head of portfolio management at Darson Securities, said that the market to show a range bound to mixed activity in the coming week and a trend to remain in this cycle unless some genuine inflows arrive from UAE and Saudia Arabia. He added that the market is likely to move in the range of 45300 to 46700 points in coming sessions.
Shahryar said a couple of factors have helped boost the sentiment of the investors- continuous improvement in the value of the rupee owing to continuous crackdown against hundi/hawala traders which narrowed the gap between the open market and interbank rates, a good omen for the economy. Moreover, he said investors were surprised by the State Bank maintaining the status quo for interest rates. However, the 22 percent is still higher and not viable for the industries to function. Much would depend upon the opinion of the IMF on maintaining the interest unchanged. Any reservation from the IMF would dictate the market, Shahrayar said. He said development on the political front on the weekend raised eyebrows as if prolonging it might create craters in the stock market.
Abdul Azeem, head of research at Spectrum Securities said that the KSE100 is poised to remain positive next week following SBP’s decision to maintain interest rates and the possibility of ease in inflation. Additionally, PKR appreciation against the USD due to structural and administrative actions taken by SBP will have a positive impact on the market. However, an increase in POL products & gas prices and no development regarding circular debt can have a negative impact on the market.
Pakistan’s Forex Market
“As the Rupee strengthened all of last week, traders in the bond market also anticipated a milder decision in the Monetary Policy Committee meeting; as a result, some correction was already seen. The decision to keep rates unchanged can be interpreted as the nature of current economic ills is not demand-driven., said Faisal Mamsa, CEO of Tresmark.
There are supply-side issues, fiscal mismanagement, and speculative trends. Increasing rates would not impact demand (which is already low) and would not have unlocked supply as more hoarders, speculative buyers & people with black money are immune to higher rates as they usually keep in current accounts or in cash.
Whereas the government expenses go up meteorically (being the largest borrower) and in a vicious cycle, impact inflation. Interest rates are at their highest in Pakistan’s history anyway, so taking administrative measures was really the more practical way out, he elaborated.
“But let’s move to the market forecast without wasting any more time. First, liquidity has improved in the forex market as exporters were selling in ready as well as in forwards with good volumes (premiums took a beating, being down by 5-10% annualized in mid/short tenors) and also due to uptick in daily remittances, and due to this Rupee will continue to strengthen gradually, Faisal said.
This is exactly what the doctor ordered, but don’t get carried away with talk of seeing 250/$. While some of our inflation problems were due to a spiraling currency, it is also due to supply-side setbacks. So expect higher volumes of imports (which are required to smoothen supply) to keep a check on Rupee parity. As a result, rates may not come down below 285/$ (July end levels) and should consolidate at the 290-295 level, he said.
