PSX remains volatile amid mixed indicators

KARACHI:

Pakistan Stock Exchange (PSX) experienced volatility in the outgoing week as it oscillated between red and green zones and closed with thin gains of nearly 200 points.

The market’s movement was largely influenced by mixed investor sentiment over the growing political uncertainty, policy rate cut, rating decisions of global agencies and improved economic data.

In a major development, the State Bank of Pakistan (SBP) convened its monetary policy meeting on Monday, where it announced a reduction of 100 basis points (bps) in the policy rate.

In addition, the Pakistani rupee remained stable while the central bank’s foreign currency reserves increased $75 million to $9.102 billion.

Day-to-day movement of the market showed that the KSE-100 index kicked off the week on a promising note as it surged nearly 800 points, following upgrading of Pakistan’s long-term foreign currency issuer default rating to “CCC+”, which was expected to stabilise the rupee and boost foreign currency inflows.

However, next day, stocks faced downward pressure, following a modest 100bps policy rate reduction to 19.5%, aimed at further bringing down the inflation rate.

PSX dropped nearly 750 points on Wednesday in a highly bearish activity fuelled by investor concerns over the affirmation of “CCC+” rating by S&P Global, which underscored the country’s heavy reliance on foreign assistance for meeting debt obligations amid political instability.

The following day, the market remained under pressure when investors resorted to profit-booking primarily due to the narrowing of banking spread and uncertainty about the rollover of $15 billion worth of Chinese energy debt.

Bulls staged a comeback on Friday as the KSE-100 rose around 500 points, boosted by improved economic data and optimism about a further reduction in the SBP policy rate.

The benchmark KSE-100 index rose 196 points, or 0.3% week-on-week, and closed at 78,226.

JS Global analyst Shagufta Irshad, in her report, wrote that the KSE-100 remained volatile throughout the week due to selling pressure amid political uncertainty. Average daily trading volumes increased 6% WoW, she said.

During the week, Fitch raised Pakistan’s long-term foreign currency issuer default rating (IDR) to “CCC+” from “CCC” while S&P Global maintained the rating at “CCC+” for long term and “C” for short term.

On the macro front, data from the Pakistan Bureau of Statistics (PBS) revealed that the Consumer Price Index (CPI) for July 2024 was 11.1%, marking a 33-month low. Additionally, the trade deficit shrank to $1.9 billion, the lowest in five months.

For the first fortnight of August, the government reduced petrol and diesel prices by Rs6.2 per litre and Rs10.9 per litre, respectively, due to lower ex-refinery prices. Also, the SBP’s foreign exchange reserves remained stable at $9.1 billion, she said.

At the PSX, strong Q2 earnings and dividend announcements boosted stock-specific activity in UBL and Fauji Fertiliser Company.

“The market is awaiting approval of a $7 billion IMF facility, which is expected this month, and any progress on Chinese debt restructuring could support Pakistan’s debt payments,” the JS analyst added.

Arif Habib Limited (AHL), in its report, observed that the week commenced on a positive note with the monetary policy committee meeting, where the central bank cut its policy rate by 100 bps to 19.5%.

However, Pakistan’s trade deficit in July rose 19.7% YoY to $1.95 billion. Meanwhile, the SBP raised Rs141 billion through a bond auction, where three-year and five-year yields declined 36 bps and 15 bps, respectively. In the inter-bank market, the rupee remained steady at Rs278.5 to a dollar.

Sector-wise, the notable positive contributors were fertiliser (417 points), refinery (68 points), power (63 points), exploration and production (58 points) and pharmaceutical (36 points).

Conversely, the sectors that mainly contributed negatively were cement (207 points), banks (135 points), technology (66 points), oil marketing companies (26 points) and textile (21 points).

Foreign investors sold shares worth $2.2 million during the week under review compared to net buying of $4.6 million in the previous week, AHL added.