KARACHI: Stocks took a beating on Monday as the KSE-100 index nosedived over 1,300 points, falling well below the 40,000-mark.
The decline came after the central bank projected a lower real economic growth of around 4% in FY19. The KSE-100 dived from the moment trading began as fertiliser, bank and cement stocks faced immense selling pressure.
Additionally, the shocking 1.5-percentage-point increase in the benchmark interest rate and 3.8% depreciation of the rupee against the US dollar on Friday also prompted investors to sell shares at throwaway prices.
“Developments in the economy are all set to impact earnings of the companies listed at the stock exchange,” Topline Securities’ analyst Nabeel Khursheed told The Express Tribune.
“The central bank’s latest measures are aimed at cooling down aggregate demand to fix the economy. Consequently, demand for commodities like fertiliser, steel and cement will go down. It is due to this reason relevant stocks are facing massive selling,” Khursheed said.
The analyst said the interest rate hike to a six-year high of 10% and an all-time low rupee value at 139.05 to the US dollar had made investment in government papers much more attractive than stocks. “Pakistan Investment Bonds now offer a return of 12%,” he said, adding it made stocks unattractive.
At the end of trading, the benchmark KSE 100-share Index recorded a decrease of 1,335.43 points or 3.30% to settle at 39,160.60.
Elixir Securities’ analyst Murtaza Jafar said equities nosedived following the sharp increase of 150 basis points in the key policy rate announced by the State Bank of Pakistan (SBP).
“This marks the largest single-day decline in the benchmark index since October 8, 2018. Index heavyweights cement, oil and chemical stocks took the brunt of selling right from the beginning,” Jafar said.
Lucky Cement (-5%), DG Khan Cement (-5%), Maple Leaf Cement (-5%), Engro Polymer and Chemicals (-5%), Descon Oxychem Limited (-4.99%) and Pakistan State Oil (-5%) all closed at their lower price limits.
“Financial stocks being major beneficiaries of the rate hike also traded under pressure throughout the day with Habib Bank Limited (-3.90%), MCB Bank (-2.88%) and United Bank Limited (UBL, -0.57%) losing ground as the sharp rate rise raised the risk of increase in bad loans while reducing liquidity for the equity market,” he said. The three stocks collectively contributed 145 points to the day’s decline.
“Going forward, we expect the market to find support around 38,600 where we prefer UBL, The Bank of Punjab and Hubco. Cyclicals – particularly cement companies, auto assemblers and steel manufacturers – and pharma stocks may remain under pressure for a stretched period and can test their 2018 lows,” he added.
JS Global analyst Maaz Mulla said the Pakistan Stock Exchange plummeted 3.3% following acute volatility in the currency market on Friday. Apart from that, he said, the SBP Monetary Policy Committee raised the policy rate by 150 basis points to 10% while also revising down its economic growth forecast.
“Moving forward, we expect the market to remain choppy and volatile on the back of serious economic concerns; we contemplate increase in the current account deficit, currency depreciation, stringent conditions from the IMF, downward revision in the development budget and inflationary pressure with further cut in growth rate,” Mulla added.
Overall, trading volumes decreased to 164.4 million shares compared with Friday’s tally of 270.8 million. The value of shares traded during the day was Rs6.5 billion.
Shares of 364 companies were traded. At the end of the day, 39 stocks closed higher, 313 declined and 12 remained unchanged.
The Bank of Punjab was the volume leader with 20.5 million shares, losing Rs0.24 to close at Rs13. It was followed by K-Electric with 17.4 million shares, losing Rs0.29 to close at Rs5.35 and Lotte Chemical XD with 9.6 million shares, losing Rs0.8 to close at Rs18.06.
Foreign institutional investors were net buyers of Rs69.3 million worth of shares during the trading session, according to data compiled by the National Clearing Company of Pakistan.