Weekly review: KSE gets a thrashing as rupee hits lows

Benchmark 100-share index falls 1,208 points during week.

KARACHI:

The stock market got a thrashing as bearish sentiment persisted following a steep decline in the value of Pakistani rupee against the US dollar, resulting in the benchmark KSE 100-share index losing 1,208 points (5.1%) during the week ended September 27.

Despite a positive start to the week, investor sentiment took a U-turn as the rupee started depreciating at a fast pace against the greenback with no signs of slowing down. Negative sentiment prevailed throughout the week and culminated with bad news for the banking sector when the central bank increased the rate of return on savings deposits.

The rupee, which had been on the decline for the past few weeks, fell sharply this week when dollars vanished from the open market. The inter-bank market followed suit and the exchange rate fell to as low as 110 to a dollar before the State Bank injected $50-60 million into the market to stabilise the exchange rate.



However, it remains to be seen whether the rupee will stabilise over the long term. With the country’s foreign exchange reserves at perilously low levels, the increase in prices of oil in the international market and constant repayments to the International Monetary Fund, the central bank can ill-afford to take such corrective measures in the future. This is likely to play in investor’s minds going forward.

The government has entered into a new arrangement with the IMF for a $6.7 billion Extended Fund Facility, of which $540 million was received this month. It is also in talks with the World Bank and Asian Development Bank for soft loans, which could shore up the country’s foreign exchange reserves and avert a balance of payments crisis.

The banking sector, which was the star performer at the bourse in the previous week after the central bank’s decision to increase the discount rate, suffered a major setback at the end of this week as the central bank made the surprise announcement of a 50-basis-point hike in the savings deposit rate.

The rate increase is likely to lead to a significant drop in profits of banks and as a result, the majority of banks ended the week at their lower circuit breakers. The effects are likely to spill over into the following week and investors should see further decline in the sector.

Average trading volumes recorded a sharp decline and were down 24.8% at 183 million shares per day. Similarly, average daily values fell 26.7% to Rs6.16 billion. The Karachi Stock Exchange’s capitalisation stood at Rs5.29 trillion, down 4.5% over the previous week.

The coming week is likely to start on a weak note, with the banking sector taking the centre stage. However, the rupee-dollar exchange rate will be monitored closely as it is likely to be a primary factor which will influence investment decisions.

Winners of the week

Engro Polymer and Chemicals



Engro Polymer & Chemicals Limited manufactures thermoplastics, such as polyvinyl chloride (PVC) in powder, pellet, or granulated form. The company’s products can be used in different applications such as piping systems, indoor products, electrical and housing construction.

Indus Motor Company



Indus Motor Company Limited was created through a joint venture agreement between the House of Habib, the Toyota Motor Corporation and the Toyota Tsusho Corporation, in order to assemble, manufacture and market Toyota vehicles. The company is also the sole distributor of Toyota vehicles in Pakistan.

Sui Southern Gas Company



Sui Southern Gas Company Limited transmits and distributes natural gas, and constructs high pressure transmission and low pressure distribution systems. The company’s transmission system extends from Sui in Balochistan to Karachi in Sindh.

Losers of the week

Fauji Fertilizer Bin Qasim



Fauji Fertilizer Bin Qasim Limited manufactures, purchases, and markets fertilisers. The company produces Granular Urea and DAP.

PTCL



Pakistan Telecommunication Company Limited provides fixed line domestic and international telephone services, telex, telegraph, fax and leased circuit services in Pakistan. It is also the largest broadband service provide in the country.

Fatima Fertilizer Company



Fatima Fertilizer Co Ltd produces fertilizers. The company is developing a fully integrated fertiliser complex, capable of producing Ammonia, Nitric Acid, Nitro Phosphate, Nitrogen Phosphorous Potassium, and Calcium Ammonium Nitrate.

Published in The Express Tribune, September 29^th, 2013.

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