Stocks undergo huge correction on profit-taking
Segregation of client assets is critical as brokers have been penalised for using client money illegally. PHOTO: AFP
Pakistan Stock Exchange (PSX) underwent extensive correction during the outgoing week and lost nearly 4,500 points as domestic and foreign investors opted for profit-taking following successive record highs broken during a prolonged rally.
The market remained under heavy selling pressure because of several factors particularly profit-booking ahead of year-end and the surging international oil prices due to attacks on ships in the Red Sea.
Dismal data on large-scale manufacturing (LSM) growth, which fell 4.1% year-on-year (YoY), and pre-election uncertainty also weighed on investors’ mind that dented their confidence.
There were encouraging developments as well like the World Bank’s approval of a $350 million financing under RISE-II programme and loan deals worth $1.2 billion with the Asian Development Bank (ADB) for budget financing, which kept investors’ spirit alive.
Besides, hopes grew that the International Monetary Fund (IMF) board meeting, scheduled for January 11, would approve the release of second loan tranche of $700 million.
At the beginning of the week, the benchmark KSE-100 index came under downward pressure on account of institutional profit-taking in overbought stocks amid a global crude price slump and concerns about the fate of structural reforms post-elections in Pakistan.
Next day, the market witnessed a “bloodbath” as the PSX plunged over 2,300 points due to pre-election uncertainty and worries about a 50% drop in foreign loan inflows.
On Wednesday, some loan approvals helped the PSX slash hefty losses, but still the index dipped 385 points. The following day, the bourse made a modest recovery with gains of nearly 250 points.
Read PSX slumps on pre-poll uncertainty
On Friday, bears took the driving seat again as political uncertainty and the falling foreign exchange reserves triggered a deep correction, leading to a plunge of nearly 1,000 points.
Overall, the KSE-100 index plummeted 4,425 points, or 6.7% week-on-week (WoW), and settled at 61,705.
JS Global analyst Shagufta Irshad, in her review, said that the KSE-100 index saw a 6.7% WoW correction, sweeping away over 4,400 points within a week. “The market is down 8% from its intra-day high of 67,094 recorded during the last fortnight,” she said.
Average volumes dropped 27% WoW, standing at $78 million at the week’s close. She cited margin financing, profit-taking by foreigners and local institutions as the year-end approached and the rise in international oil prices as the key reasons behind the market’s fall.
Among notable international events was the suspension of traffic by shippers post-Red Sea attacks and subsequent shipment delays, which triggered a rise in freight costs and 4% WoW increase in oil prices (West Texas Intermediate crude) to $74.5 per barrel.
On the domestic front, the State Bank’s foreign exchange reserves fell below the $7 billion mark due to debt repayments. Oil imports and textile exports showed 16% and 6.5% YoY decline respectively during 5MFY24.
“With the market going through a corrective phase, investors largely ignored positive news regarding the cabinet committee’s approval of disbursement of Rs262 billion in payables to IPPs to contain the energy sector’s circular debt,” the JS analyst added.
Arif Habib Limited, in its report, noted that investors opted to book profit in various sectors, which resulted in the market closing in the red.
During the week, it pointed out, the ADB announced a $1.2 billion loan agreement with Pakistan. Along with that, the World Bank approved financing of $350 million for its RISE-II programme.
Moreover, Pakistan recorded a monthly current account surplus of $9 million for the first time after June 2023. Additionally, the Economic Coordination Committee approved a proposal of the Power Division to settle dues of government-owned power plants by using a supplementary grant of Rs262 billion. Foreigners bought shares valuing at $2.4 million during the week under review against net buying of $6.3 million last week.
Published in The Express Tribune, December 24th, 2023.
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