Market watch: Stocks rally over low CPI, rate cut on saving schemes

Benchmark index rises 386.08 points to settle at 34,408.05

KARACHI: Optimism emerged at the bourse on Tuesday as the benchmark KSE-100 index rallied and gained 386 points on the back of a low inflation reading for May coupled with reduction in rates of national saving schemes.

According to data released by Pakistan Bureau of Statistics (PBS) on Monday, the inflation rate, measured by the Consumer Price Index (CPI), eased for the fourth successive month and stood at 8.2% in May 2020 despite a seasonal spike in prices of essential food commodities.

On the other hand, the government slashed profit rates on national saving schemes by 200 basis points to 6.5% on Tuesday, which further fuelled the rally. Saving rates have been revised downward for the third time this year.

Both the announcements strengthened investors’ sentiment and they cherry-picked stocks throughout the session.

In addition to that, market participants pinned hopes on the announcement of a people-friendly budget next week, which kept the mood positive during the session.

A rise in international crude oil prices lent further support and index-heavy oil stocks notched up gains.

The prevailing positivity helped trading to begin on a positive note in the morning and the index rose past the 34,500-point mark till midday. However, the uptrend could not be sustained and some of the gains were wiped off in later hours. Nevertheless, investor optimism supported the index that closed the day with significant gains.

At close, the benchmark KSE-100 index recorded an increase of 386.08 points, or 1.13% to settle at 34,408.05.

Arif Habib Limited, in its report, stated that the market went up on the back of support from the banking sector that attracted investors’ interest after Eid.

“Monday’s performance of the index was largely the result of support from the banking sector and Tuesday’s continuation gave investors the confidence to invest more,” it said.

“A couple of factors that helped investors make buying in the banking sector include a gradual increase in secondary market’s PIB (Pakistan Investment Bond) yields since last month as well as annual average inflation for FY20 in excess of 10% that diminishes the prospect of further rate cut and therefore renewed interest in the banking sector.”

Cement sector stocks also showed some signs of revival but remained range bound.

Banking sector stocks led the volumes with trading in 50 million shares, followed by technology firms (24.3 million) and cement companies (17.3 million).

JS Global analyst Danish Ladhani said the benchmark KSE-100 index extended its gains by 386 points and closed at 34,408. The market remained in the green zone where commercial banks and exploration and production companies were the major movers.

The bourse experienced some respite after a news regarding reduction in capital gains tax emerged in the market.

In the financial sector, UBL (+7.5%) and Bank Alfalah (+7.5%) hit their upper circuits.

In the exploration and production sector, Pakistan Oilfields (+3.1%) and Pakistan Petroleum (+0.8%) were in the green zone as international crude oil prices rose ahead of OPEC+ meeting on extending output cuts.

Honda Atlas Cars (+4.5%) in the automobile sector announced full-year earnings per share of Rs4.77 vs Rs26.97 in the same period of last year with cash dividend of Re1 per share.

Engro (+0.2%), HBL (+3.9%), MCB (+6.3%), Pakistan Petroleum (+0.8%), UBL (+7.5%), Pakistan Oilfields (+3.1%) and Bank AL Habib (+2.9%) were the major index movers.

Traded value stood at $52 million, up 19% and volumes came in at 221 million shares, up 12%.

“Going forward, we expect the market to trade sideways and recommend investors to sell on strength ahead of the budget announcement,” the analyst said.

Overall, trading volumes increased to 221.7 million shares compared with Monday’s tally of 198.1 million. The value of shares traded during the day was Rs8.6 billion.

Shares of 358 companies were traded. At the end of the day, 172 stocks closed higher, 161 declined and 25 remained unchanged.

Pak Elektron was the volume leader with 14.2 million shares, losing Rs0.21 to close at Rs24.15. It was followed by TRG Pakistan with 12.6 million shares, losing Rs0.19 to close at Rs27.88 and Hascol Petroleum with 12.3 million shares, losing Rs0.07 to close at Rs14.54.

Foreign institutional investors were net sellers of Rs1.57 billion worth of shares during the trading session, according to data compiled by the National Clearing Company of Pakistan.