Pakistan-India tension: Stocks fall, but absorption power remains strong

Benchmark KSE 100-share Index decreases 59.50 points

KARACHI: Stock markets on either side reacted strongly after Indian claims of a surgical strike along the Line of Control (LoC), reversing all gains made after oil producers gave the initial boost by agreeing to cut production.

While Pakistan rejected India’s statement of a “surgical strike”, two Pakistani soldiers were killed in the “cross-border fire”. Prime Minister Nawaz Sharif condemned what he called India’s “naked aggression”.

The development came on the heels of rising tension between the two neighbours that has gained traction after the Indian government accused Pakistan-based militants of conducting the Uri attack that killed 18 soldiers.



The news took its toll on stock market participants who were earlier rejuvenated after the Organization of the Petroleum Exporting Countries’ (OPEC) committed to cut production, giving the index-heavy oil and gas sector a much-needed boost after months of a bearish run that has seen share prices plummet.

An over-500-point increase quickly vanished around mid-day as participants consolidated and trimmed positions with uncertainty over the future of Pakistan-India relations taking centrestage.

The Pakistan Stock Exchange’s (PSX) KSE-100 index - a benchmark for market performance - rose close to 1.25% by noon before LoC news took participants by surprise, also giving the stock market the perfect excuse to correct and create room for further advancement.

Within a half hour, all gains had been wiped off.

By close on Thursday, the index ended 0.15% or 59.50 points lower, finishing at 40,295.52.

Market reaction

The stock exchanges on the Indian side came under the hammer as well. Its National Stock Exchange’s Nifty 50 index plunged 1.76% while the S&P Bombay Stock Exchange SENSEX Index went down 1.64% by close of trading.



“The Pakistan market opened on a healthy note and investors were quick to seize an opportunity in oil stocks that had been depressed for some time,” Arif Habib Limited CEO Shahid Habib told The Express Tribune. “The news (of Indian belligerence) meant they looked to consolidate and book profits.

“Given the rise and the subsequent finish, which was just 0.15% down, we would say that was a good sign. It was not panic-selling, but a healthy correction.

“The minute fall means the market is healthy enough and remained willing to absorb the selling pressure. Investors will now look to adopt a wait-and-see approach and follow news developments closely as any retaliation by Pakistan or any further aggression by India will mean a further negative.”

Commenting on the minute decrease of 0.15%, in comparison to India’s markets that exhibited over a 1.6% fall, Habib said Pakistan remains an attractive market given its recent entry in the MSCI Emerging Markets Index.

“Pakistan offers great potential upside that hasn’t been unlocked yet. It remains fundamentally strong with strong earnings growth, dividend yield and an undervalued price-to-earnings multiple of 9.7.”

Meanwhile, Dr Gohar Rasool, head of international sales at Intermarket Securities, said the market has remained volatile for a while amid dearth of positive triggers.

“Lack of positive triggers in the near term and rising political noise have taken their toll,” said Rasool in an emailed response. “Expected foreign flows post the MSCI reclassification have yet to commence in earnest.



“All this coupled with recent escalation of negative rhetoric with India could lead to further dampening of market sentiment if it escalates or sustains. (However) the MSCI upgrade to EM Index is likely to continue providing the much needed support in the form of foreign flows in coming days.”



Trade volumes rose to 712 million shares compared with Tuesday’s tally of 435 million.

Shares of 460 companies were traded. At the end of the day, 303 stocks closed higher, 137 declined while 20 remained unchanged. The value of shares traded during the day was Rs21.4 billion. Bank of Punjab was the volume leader with 59.6 million shares, losing Rs0.44 to finish at 13.14. It was followed by Pace (Pak) Ltd with 56.2 million shares, gaining Rs1.00 to close at Rs11.93 and TRG Pak Ltd with 33.7 million shares, losing Rs0.46 to close at Rs43.71.

Foreign institutional investors were net buyers of Rs76 million during the trading session, according to data maintained by the National Clearing Company of Pakistan Limited.

Published in The Express Tribune, September 30^th, 2016.

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