PSX slumps amid heavy selling, political chaos

KARACHI:

Pakistan Stock Exchange (PSX) experienced volatility in the outgoing week as bulls and bears wrestled for control, causing the benchmark KSE-100 index to fluctuate between red and green zones due to mixed developments.

The index failed to protect the psychological level of 80,000 points, closing the week in the red at slightly above 78,000 with a sharp drop of nearly 2,100 points.

The bourse began the week on a highly bearish note as it nosedived over 1,600 points owing to high political uncertainty following the government’s potential move to ban a major opposition party.

Bulls returned to the stock exchange on Tuesday as the KSE-100 climbed over 400 points primarily because of an expected rate cut by the State Bank of Pakistan (SBP) in its monetary policy announcement on July 29.

On Wednesday, the market extended gains, driven by a rally during the earnings season and hopes of policy rate reduction.

After two days of robust gains, the market lost momentum as it shed more than 900 points on Thursday due to concerns over a deteriorating political situation and uncertainty about the settlement of Chinese independent power producers’ (IPPs) dues.

A bearish trend prevailed in the last trading session in the absence of major positive developments and because of a chaotic political environment, which left investors wary of the upcoming monetary policy announcement.

The benchmark KSE-100 index closed the week at 78,030, with a significant decline of 2,089 points, or 3% week-on-week (WoW).

Topline Securities, in its review, said that a 2.6% WoW decline could be attributed to the increase in political noise following the government’s reluctance to implement court’s decision in a reserved seats case in favour of the opposition and the consideration to ban the major opposition party – the Pakistan Tehreek-e-Insaf (PTI).

Profit-taking by investors after a long consolidation period around 80,000 was also one of the reasons for the selling pressure during the week, it said. A major event was the T-bills’ auction where yields declined 30-56 basis points ahead of the monetary policy announcement on Monday next week. Average daily traded volumes and value stood at 336 million shares and Rs15.5 billion, respectively, Topline added.

JS Global analyst Wadee Zaman wrote in his report that the KSE-100 continued to remain under pressure during the outgoing week owing to the political unrest, which caused uncertainty on the economic front, resulting in investors taking a cautious approach.

Among major news, Pakistan awaited final nod from the IMF executive board for a new Extended Fund Facility of $7 billion. The government was also actively negotiating with China for the re-profiling of energy companies’ debt along with plans to convert imported coal-based power plants into Thar coal. In addition, Pakistan aimed to issue Panda bonds to diversify funding sources and reach out to new investors, the JS analyst added.

Arif Habib Limited (AHL), in its report, observed that during the week, the stock market remained negative despite the recent $7 billion staff-level agreement between the IMF and Pakistan, commencement of corporate results season and anticipation of rate cut in the upcoming monetary policy.

The bearish trend was mainly driven by political noise in the country, it said. On the economic front, foreign direct investment settled at $169 million in June 2024, down 37% month-on-month. The SBP’s foreign exchange reserves went down $397 million to $9 billion.

In addition, power generation during FY24 dropped to its lowest level in four years at 127,167 gigawatt hours (GWh). Pakistani rupee depreciated against the US dollar by Rs0.21, or 0.1%, and settled at Rs278.34/$.

Foreign investors bought shares worth $4.6 million during the week under review compared with net buying of $9.3 million in the previous week, AHL added.