Bulls dominate on resumption of IMF deal

Contraction in current account deficit, stability in rupee also drive sentiments

Our Correspondent March 28, 2021


The stock market remained in the grip of bulls in the outgoing week as resumption of the International Monetary Fund (IMF) bailout programme for Pakistan, coupled with a host of positive triggers, fuelled buying activity in the short week. As a result, the KSE-100 index rose 620 points to close the week at 45,521.63 points.

“In what can be considered a major development, the Executive Board of the IMF officially resumed the Extended Fund Facility as it approved a $500 million tranche for Pakistan,” JS Global analyst Ali Zaidi.

“In order to resume the program, the government had to take difficult decisions including, but not limited to, revoking a number of tax exemptions allowed to the corporate sector.”

Read: IMF loan approval helps KSE-100 ascend

Trading kicked off on Monday with a spike as investors welcomed the status quo in the interest rate by the State Bank of Pakistan (SBP) during the monetary policy announcement on March 19, 2020. Fuelling the uptrend, the current account deficit contracted 75%, which helped keep buying interest alive.

The bourse maintained the upward trajectory over the next two sessions taking the three-day gain to over 800 points supported largely by IMF’s approval of $500 million tranche. Market participants also cheered the recently proposed Refineries Policy 2021 that kept the refinery sector under the limelight throughout the week.

Moreover, persistent appreciation of rupee against the US dollar painted an encouraging image of the economy and bolstered investor confidence. With a fresh gain of Rs0.43 on Friday, the rupee has recovered 8.22% or Rs13.85 in the past seven-month to date since it hit all-time low of Rs168.43 on August 26, 2020.

The final day of the week saw the market reverse its trend and dive on back of an alarming rise in the number of Covid-19 cases in Pakistan, which renewed fears of another nationwide lockdown and triggered panic at the bourse. Investor sentiment was partially suppressed by the withdrawal of corporate tax exemptions to the corporate sector as well as anticipated hike in electricity tariff to fulfil IMF’s conditions.

With the presidential ordinance set to end tax exemptions to private sector companies, the market expects investment climate to worsen. “The market is expected to remain positive next week as strengthening rupee-dollar parity and stable external position is consolidating macros,” stated an Arif Habib Limited report. “However, smart lockdowns are being placed to counter the third wave of Covid-19 hence the element of uncertainty cannot be ignored.”

Average daily traded volume declined 4% week-on-week to 463 million shares while average daily traded value amounted to $159 million, up 10% week-on-week.

In terms of sectors, positive contribution came from technology and communication (333 points), oil and gas exploration companies (94 points), auto assembler (71 points), refinery (62 points) and chemical (50 points).

On the other hand, negative contribution was led by commercial banks (46 points) and cement (39 points).

Also read: Stocks snap four-day winning streak

Scrip-wise, positive contributors were TRG Pakistan (280 points), Pakistan Petroleum (65 points), Attock Refinery (56 points), Oil and Gas Development Company (47 points) and Azgard Nine (44 points). Meanwhile, negative contributors included HBL (52 points), Pakistan Oilfields (28 points) and Engro (24 points).

Foreigners turned sellers this week as they off-loaded shares worth $0.1 million compared to a net buy of $3 million last week. Selling was witnessed in technology and communication ($2.1 million) and power generation ($1.2 million). On the domestic front, major buying was reported by broker proprietary ($3.7 million) and mutual funds ($1.7 million).

Among other major news of the week; Pakistan and the World Bank signed over $1.3 billion worth of loan agreements, foreign exchange reserves held by SBP increased $275 million, and proposals for privatisation of 10 distribution companies were finalised.

Published in The Express Tribune, March 28th, 2021.

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