KARACHI: Benchmark KSE100 lost 0.7% during the past week, to close at 42,505. The week started on a buoyant note after Pak Rupee (Rs) witnessed surprising gains in the Open Market over the weekend. However investors resorted to profit taking in equities later on, as euphoria on PTI win in the Elections subsided. Rupee gained 10 or 8% in Open Market against the US Dollar over the last weekend. Interbank market followed suit over the week as it gained 3% to close at Rs 124.05/USD by Friday. Market activity picked up during the week as an average of 284 million shares exchanged hands while traded value surged 37% WoW to average at $ 96 million. In his briefings to the media, Asad Umar (widely tipped to be the next Finance Minister) did not rule out the possibility of Pakistan’s re-entry into another IMF Program. More importantly, he highlighted that once in power he will look to implement the following two reforms on a war footing basis: create a sovereign wealth fund and move government entities into the fund to limit the involvement of bureaucracy and politically motivated decision making and expedite release of refunds (export incentives, sales tax etc) to the industry to revive the ailing manufacturing sector. US Secretary of State Mike Pompeo’s remarks about Pakistan’s potential IMF bailout were however concerning. He warned that the bailout for Pakistan’s new government should not provide funds to pay off Chinese lenders. Commercial Banks dragged the index down as investors dumped shares of the two key Banking stocks United Bank Limited (UBL) and Habib Bank Limited (HBL) on disappointing earnings. UBL lost 11.2% during the week after it posted a decline of 40%YoY in its second quarter 2018 earnings where the negative surprise emanated from an unexpected Pension Liability Provisioning of Rs 2 billion. HBL fell 9.8%WoW after it also reported a decline of 48%YoY in its second quarter EPS (PKR2.29) due to lower than expected Net Interest Income and a significant surge in Admin Expenses. Amongst outperforming sectors, Power & Distribution Companies gained 3.5% during the week with Kot Addu Power (KAPCO) and Hub Power Company (HUBC) gaining 8.1% and 3.4%, respectively. Fertilizer sector also stood out, gaining 1.7%WoW, on higher Urea prices amidst shortage in the industry. Foreigners took advantage of increased trading activity on the local bourse and offloaded shares worth $ 14.6 million during the week. Domestic mutual funds and banks also continued with their selling spree as they sold shares worth $ 7.1 million and $ 6.0 million. On the other hand, Individuals continued to stand out as net investors as they bought shares worth $ 26.4 million during the week, up from $19.0 million last week. Elixir Research Department’s report stated that Political engineering will continue into the next week as both PTI and joint opposition try to garner support to lead the National Assembly by fielding their respective candidates. “We expect PTI to manage electing their Prime Minister and Speaker, albeit with a very thin majority. However once the dust settles, all eyes will be back on economy where investors would be keen to see how newly appointed government’s discussion with the IMF pan out. Eyeing interest rate hikes and potential slowdown in economy, we continue to advise investors to trim positions in cyclical sectors”. Published in Daily Times, August 5th 2018.