Stocks are likely to remain range-bound during this week due to political instability and passive foreign inflows.
The ongoing third wave of Covid-19 may add some risk to investors’ confidence at the Pakistan Stock Exchange (PSX) as the country has recorded over 600 Covid-19 related deaths and around 33,000 coronavirus cases last week. However, keeping in view the smart lockdowns in place in hotspot areas and aggressive vaccination drive by the government, a complete lockdown is unlikely and this will benefit the market.
On a positive side, strengthening rupee, stable external position, result season, and world stocks marking a record high in the entire history of global financial trading are strong indicators that the index may move to the north.
According to Arif Habib Limited, positive sentiments are likely to prevail in the stock market during the next week as the result season is commencing and investors hope for healthy earnings. “With the result season commencing from next week, we believe cyclical sectors / scrips will be under the limelight on the back of healthy earnings expectations.”
Political instability in the face of defeat of the ruling party’s candidate in NA-75 Daska, Sialkot, on Saturday as well as cases against Pakistan Tehreek-e-Insaf (PTI) leader Jahangir Tareen may send ripples through the stock market.
Foreign selling continued last week clocking in at $9.5 million compared to a net sell of $4.9 million in the preceding week. Selling was witnessed in commercial banks ($4.2 million) and fertilizer ($3 million). On the domestic front, major buying was reported by banks/ DFIs ($3.2 million) and companies ($2.5 million).
It is expected that rupee/dollar parity will remain strong. The foreign reserves held by the country have increased to 23,179.4 million after the State Bank of Pakistan (SBP) received $2.5 billion as proceeds of Eurobonds floated by the government. According to the central bank, its reserves have reached $16,027.20 million, showing their highest level since July 2017. On the other hand, the foreign exchange reserves held by commercial banks stand at $7,152.20 million.
The rupee gained Rs0.61 against the greenback last week, while it has gained Rs15.11 against the greenback in fiscal year 2020-21 and appreciation has been Rs6.91 in current year.
The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) is currently trading at a PER of 6.8x (2021) compared to Asia Pac regional average of 16.4x and while offering DY of 7.1 percent versus 2.6 percent offered by the region.
The market commenced on a negative note last week given 5,000+ cases being reported daily. Moreover, the International Monetary Fund and World Bank forecast GDP growth at 1.5 percent and 1.3 percent, respectively in FY21, which are lower than SBP’s projection of 3 percent.
Moreover, news came in regarding extension of the Debt Servicing Suspension Initiative (DSSI) till December 2021 which was welcomed in the local bourse. Alongside this, expectation of robust quarterly results kept the index in the green. The market closed at 45,186 points, gaining 885 points (+2 percent) on a week-on-week basis.
Sector-wise positive contributions came last week from cement (280 points), technology & communication (256 points), textile composite (65 points), engineering (58 points) and power generation & distribution (57 points). The sectors that contributed negatively include commercial banks (40 points), auto assembler (22 points) and fertilizer (21p points).