Daily Times

The Pakistan Stock Exchange (PSX) is likely to continue with range-bound sessions this week due to lack of any positive trigger, though fog is clear now on the Financial Action Task Force (FATF) as well as the International Monetary Fund (IMF) fronts.

Expected corporate profitability may be a factor that can create hawkish sentiment in the bourse, as the fourth quarter of the current fiscal year is ending this week; however, suspension of gas supply to non-export industry is not a small factor to be ruled out.

Although decreasing coronavirus cases is a positive thing, yet a warning from the National Command and Operation Centre (NCOC) head Asad Umar that a fourth wave of Covid-19 may hit the country in coming July may discourage investors to take long-term investment risks.

Global securities index publisher Morgan Stanley Capital International (MSCI) on Friday last proposed to downgrade the Pakistan Stock Exchange (PSX) to its Frontier Markets (FM) Index in November 2021 from the Emerging Markets (EM) Index at present. Market analysts are divided over the development and viewed this differently.

According to Topline Securities, the potential downgrade in classification could be beneficial for Pakistan in terms of increasing visibility amongst foreign participants. The firm estimates potential investment from passive FM funds to the tune of $150 to 200 million where $125 to 150 million are likely to be in the main constituents.

Arif Habib Limited, in its report, stated that Pakistan’s weight was around 9.2% when it exited the frontier markets space in November 2017, which has come down to 5.8% due to a decline in the country’s market capitalisation on the back of significant depreciation in Pakistani rupee. “We estimate outflows from funds tracking the EM Index to arrive at $111 million, effective from the day of exit. Expected outflows from LUCK, HBL and MCB are $45 million, $29 million and $25 million respectively, while outflows from small cap scrips are expected at $12-15 million.”

About the expectation of the market’s behaviour this week, the analysts said that the market will depict a mixed to positive trend in the upcoming week attributable to FATF’s announcement to keep Pakistan on grey list and sectors that got major relief in the budget will remain in the limelight.

On the other hand, E&P scrips are expected to continue performing well due to higher international oil prices and government shelving divestment plans of OGDC and PPL and also deferring divestment of government shares in MARI, they said. However, a current account deficit of $632 million for May 2021 and uptick in CPI in the upcoming months, may dampen investors sentiments.

The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) is currently trading at a PER of 6.8x (2021) compared to Asia Pacific regional average of 16.5x while offering a dividend yield of 6.9 percent versus 2.3 per cent offered by the region.

The benchmark KSE-100 Index remained range-bound during the last week and closed at 47,603 points, down by 635 points (-1.32 percent) on a week-on-week basis.

The rollover week, uncertainty around FATF review, potential downgrade in MSCI review, and uneasiness regarding ongoing talks with IMF led the market on its downward path. Contribution to the downside was led by cement (-212 points), commercial banks (-178 points), oil and gas exploration companies (-58 points), pharmaceuticals (-53 points), and oil and gas marketing companies (-51 points).