Weekly review: PSX recovers on monetary easing, inflows

Activity remains dull as index posts gains of 501 points in outgoing week

KARACHI: Bears took a break from the Pakistan Stock Exchange as it surged in to the green territory, with investors taking cues from the monetary easing and foreign inflows. The market settled with a gain of 501 points or 1.5% in the outgoing week at 33,939 points.

The week commenced on a positive note as the index rebounded from a three-day losing streak as investors resorted to cherry-pick stocks on attractive valuations. The bullish trend continued as support from recovery in global stock markets coupled with increase in international crude oil prices helped strengthen investor sentiment.

Unfortunately, by mid-week sentiments turned sour as investors started offloading stocks, which dragged the market down. The upbeat current account data, announced during the week, failed to garner much excitement as the overall mood remained sombre. Pakistan’s current account turned into a surplus of $13 million in May 2020.

The mounting number of infections across the world fuelled fears of a second wave and pressure from downturn in international markets also weighed on participants in the domestic market. Moreover, the International Monetary Fund (IMF) revised down its growth prediction for Pakistan for fiscal year 2020-21 to 1% from the previous estimate of 2%, which also lent a heavy blow to the investor interest.

The market remained under pressure on Thursday following sell-off in international equity markets and the decline in global crude oil prices. Exploration and production and oil marketing companies bore the brunt of impact of the international oil price fall and both index-heavy sectors closed entirely in the red.

However, the trend reversed in the last trading day of the week after the central bank significantly slashed the benchmark interest rate. In a surprising move, the State Bank of Pakistan cut the policy rate by 100 basis points to 7%. This development, coupled with rising oil prices in international market and foreign inflows from financial institutions propelled the index higher.

Pakistan received $1 billion in fresh loans from two international financial institutions for overcoming the shortfall in budgeted expenditures, mainly on health and socio-economic fronts, and to better fight the coronavirus pandemic. The central bank got $500 million each from the Asian Development Bank (ADB) and the World Bank, which lent much-needed support to the depleting foreign currency reserves.  Additionally, extension in Financial Action Task Force’s (FATF) deadline also provided breather to investors and helped the market recover.

Participation remained dull as average volumes fell 23% during the week to settle at 177 million shares, while average value traded was down 16% to clock-in at $35 million.

In terms of sectors, support to the index was lent by fertiliser (326 points), cements (108 points), power generation and distribution (46 points), oil and gas marketing companies (34 points) and auto assemblers (31 points).

However, sector-wise negative contribution came from commercial banks (90 points), tobacco (13 points) and pharmaceuticals (8 points).  Scrip-wise, positive contributions were led by FFC (101 points), ENGRO (95 points), DAWH (78 points), EFERT (47 points) and HUBC (44 points).

Foreign selling continued this week clocking-in at $9.9 million compared to a net sell of $4.8 million last week. Selling was witnessed in fertiliser ($2.7 million) and commercial banks ($2.6 million).

On the domestic front, major buying was reported by insurance companies ($7 million) and mutual funds ($3.4 million).

Among major highlights of the week were; IMF revised Pakistan’s growth target from 2% to 1%, cabinet apprived furnace oil imports for K-Electric, rupee fell to a two-and-a-half month low of Rs167.7 against the dollar, current account deficit narrowed 77% to $3.3 billion in 11 months of ongoing fiscal year and gold hit a record all-time high at Rs105,100 per tola.

Published in The Express Tribune, June 28^th, 2020.

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