KARACHI: After a steep correction last week, KSE-100 recovered 1.1 percent week-on-week (WoW) to close at 42,074 points; however the relief rally in earlier part of the week fizzled on profit taking, continued economic concerns and unabated foreign selling. Trading activity remained muted with average daily traded volumes inching up by a mere 4 percent WoW to 119 million shares. In terms of sector performance, banks and fertilizer returned 1.8 percent and 2.6 percent during the week. Rally in Banks was due to expectation of interest rate hike, attractive prices and opening of valuations that happened after constant foreign selling. Amongst other sectors related news flow, DG Khan Cement (DGKC) and Bestway Cement (BWCL) announced trial production of their new cement plants in Hub Baluchistan and Farooqia Punjab, respectively, during the week. While DGKC expansion was expected, BWCL early entry was a surprise. The State Bank of Pakistan (SBP)’s Monetary Policy Committee has decided to increase the policy rate by 50bps to 6.50 percent effective from Monday 28th May 2018. Economic imbalances and rising core Non-Food Non-Energy (NFNE) inflation led SBP to raise Policy Rate/Discount Rate by 50bps to 6.5%/7.0% in monetary policy released after market. Monetary Policy Committee’s (MPC) highlighted risks of rising inflation as they maintained average FY18 inflation estimate at 3.5%-4.5% but slightly revised up FY19 average inflation estimate to >6.0% from ~6.0% previously. Owing to economic imbalances, the Committee also viewed Government’s FY19 GDP growth target of 6.2% as ambitious. Its language remained moderately hawkish with regards to interest rate outlook; as a result we believe that there is a possibility of another 50bps hike in upcoming monetary policy due to negative real interest rate projections for upcoming months. Foreign investors and Brokers continued to be the major net sellers as they sold shares worth USD26.1 million and USD5.5 million during the week, respectively. This selling was mainly absorbed by Insurance companies and Other Organizations with net buying of USD23.2 million and USD7.0 million, respectively. Elixir Securities’ Research team said while the interest hike is broadly in-line with the move in secondary market yields, the quantum (50bps) is slightly higher than the equity market consensus (25bps). This may ignite interest in banking stocks while autos may take a further hit due to demand pressures with rising cost of consumer financing. Construction sector and OMCs shall feel the pinch due to increase financing costs. Investors will also look out towards the development on the political front as talksbetween the government and opposition failed to nominate interim PM, which shall now be nominated through parliamentary committee, they added. Published in Daily Times, May 27th 2018.