Daily Times

After closing the second week in a row on a positive note, the stock market may be kept under pressure in the coming days by the proposed mini-budget and Omicron variant of the coronavirus.

Other negative factors for the market remain increasing inflation, depreciating exchange rate and consistent outflow of foreign investment. However, the market may continue the recovery on the back of positive fiscal developments for Afghanistan during the Organisation of Islamic Cooperation (OIC) moot in Islamabad; slowing rupee depreciation, which has been going up at a snail’s pace, and stability in interest rate in the near-term.

The extraordinary session of OIC Council of Foreign Ministers is expected to fetch billions of dollars in aid to Afghanistan. This will benefit Pakistan by lifting pressure on exchange rate, as rupee is facing additional pressure due to the Afghan crisis.

The statement of State Bank of Pakistan (SBP) Governor Reza Baqir last week, wherein he stated that the central bank will pause interest-rate increases to preserve economic recovery, may attract foreign investors towards the market. However, unless the proposed mini-budget is presented, the market cannot get a clear direction. Again, prices of some blue-chip stocks are well below the precise level, which may invite cherry-picking.

Reportedly, the government has finalised a mini-budget involving fiscal adjustments and expenditure cuts worth about Rs600 billion as part of an understanding with the International Monetary Fund (IMF). A draft of Tax Laws (Fourth) Amendment Bill 2021 for abolishing almost around 100 tax exemptions as a standard rate of 17 percent General Sales Tax (GST) would become applicable with approval of the parliament.

The government is set to withdraw GST exemptions and slap standard rate of 17 percent on import of mobile phones, computers, silver/ gold, different articles of jewellery, re-meltable scrap, LPG and many other products. The government is taking this step to pave the way for the approval of the IMF board in the middle of January for the release of $1 billion loan.

According to JS Global Capital, there is a likelihood that the inflationary pressures will start paring once the commodity prices lose more steam from tightening by global central banks. “We believe further tightening in Pakistan will be slower than previously anticipated leaving January 2022 with a status quo stance. We expect the policy rate to peak at 10.75 percent during FY22 where shifts in the policy stance will be at a sedated pace, compared with recent actions,” it added.

The benchmark KSE-100 Index last week closed up by 504.9 points (+1.16 percent) on a week-on-week basis to 43,900.68 points. The KSE All Share market capitalisation increased by Rs65.03 billion (+0.87 percent) over the week to reach Rs7.5 trillion.

Major sectors which moved the index toward north were cement (282 points), technology (173 points), textile (71 points), engineering (70 points), and refinery (50 points). The sectors which moved the index toward south were commercial banks (-208 points), fertilizer (-28 points), automobile assembler (-11 points), power generation & distribution (-8 points) and sugar and allied industries (-6 points).

The foreign investors remained net sellers during the week with an outflow of $3.45 million against an outflow of $0.98 million in the preceding week. The major selling was done by foreign corporates amounting to $4.38 million. Local other organisations and banks dumped $4.04 million and $2 million, respectively.

Major buying was reported by companies with a net buy of $5.13 million followed by individuals and insurance companies with $2.7 million and $1.1 million respectively.