TO look for a link between the two events is perhaps farfetched, but many people lend their ears to rumourmongers who wonder what triggered the current stock market rally.

This might go down in history as the longest-ever rally, which began only a day after the prime minister sat down with one of the big stockbrokers at his residence for dinner during his two-day visit to Karachi in mid-June.

Furthermore, the investors’ interest appears to have received a boost from the surprise move by the State Bank of Pakistan (SBP) a day later to a cut the policy rate by 100 basis points. Investors remained unruffled even after a bloody terrorist attack on the Pakistan Stock Exchange (PSX) on the second day of the rally.

Bulls have dominated the market for the past two weeks. The buying spree continued for the 11th consecutive session last Friday, providing cumulative gains of 2,478 points (7.4 per cent) in what turns out to be the longest winning streak in two and a half years. The traded volume galloped to 467 million shares last Thursday. “In today’s session, the PSX witnessed a traded volume of 467m shares, which is the highest in 147 sessions, last seen on Dec 5, 2019. The traded value also went up by 20pc over the previous day to $94m, last seen on April 21, 2020,” said an excited official of the Securities and Commission of Pakistan (SECP).

The buying spree has continued for 11 consecutive sessions, providing cumulative gains of 7.4pc in what turns out to be the longest rally in two and a half years

According to data compiled by Bloomberg, the 7.4pc rise in the index in 11 straight sessions represented the third biggest increase among global markets.

Next Capital Executive Director Zulqarnain Khan was bullish on the market which, he said, showed resilience against Covid-19 as well as the terror attack. He said cement despatches, particularly from the plants in the North, were on the rise although the development budget witnessed a cut.

He said the massive package for the construction industry could further boost the cement sector. As oil prices continue to pick up pace, the index-heavy exploration and production sector could see consolidation in related companies. In the manufacturing sector, the replacement value of production facilities had pulled the market price of existing units to a considerable discount.

“Most banks are trading at a discount to their book value,” Mr Khan said. He added that consumer goods companies would greatly benefit from the slashing of the policy rate since banks would have to lower their rates of financing from 18-21pc to 11-13pc.

Most market strategists believe stock prices will continue to rise as the profitability of underlying companies starts to stabilise and record growth. “Lockdowns to prevent the spread of the pandemic saw plants ground to a halt. We expect to see their impact on quarterly results for three-month periods ending in June and September,” said a textile mill owner.

He expressed satisfaction that loyal overseas customers had taken a sympathetic view about delays. Other things remaining the same, September should see the business getting back to normal, he added.

Intermarket Securities Head of Research Raza Jafri affirmed that the index was trading at a 40pc discount to the MSCI Emerging Market despite the recent upside. Local equities were also trading at cheaper multiples compared with the regional markets. He said much of the redemptions were priced in when the market hit the pit at 28,000 points in March.

Besides the construction industry that will create demand for cyclical cement and steel, Mr Jafri held a positive outlook for most sectors, including pharmaceutical, banking and exploration and production. He stated that the information technology sector had remained unscathed by the pandemic and there was even noticeable growth in such companies. He reckons that it might take 12 to 15 months for corporate profitability to rebound.

A market watcher said the pandemic provided pharmaceutical companies with a rare opportunity to record a huge price spiral. Several companies announced tie-ups with big foreign firms in their quest to produce vaccines and drugs to treat or prevent Covid-19. In addition, stocks of pharmaceutical companies sell like hotcakes owing to an exponential increase in demand for their products.

The Banking sector will also play a major role going forward. According to the SBP, deposits of banks grew 12.2pc in the last fiscal year to Rs16.2 trillion. Their total investments in government securities increased 40pc year-on-year to Rs11tr. However, private-sector lending remained restrained with advances going up by just 1.2pc.

The cut in the policy rate helped boost the sentiments of industrial entrepreneurs. The central bank introduced last week fresh measures to facilitate the business community to promote long-term investment. It announced a reduction in the markup rate under the Temporary Economic Refinance Facility (TERF) to 5pc from 7pc and under the Long-Term Financing Facility for the non-textile sector to 5pc from 6pc.

Published in Dawn, The Business and Finance Weekly, July 13th, 2020