Rarely have the stock investors sensed such tantalising blend of fear and greed.

From the bottom of the pit at 27,229 points on March 25, the benchmark KSE-100 index has roared to close at 40,030 points on August 7. It represents incredible gains of 12,937 points or 48pc in less than five months.

The meteoric rise of the index is entirely a result of the forecast about Covid-19 cases gone wrong. On June 15, Minister for Planning, Development and Special Initiatives Asad Umar issued a stark warning that the number of confirmed cases of the novel coronavirus could reach 1.2 million by the end of July.

In spite of the masses making a mockery of standard operating procedures (SOPs), the number of active cases miraculously dropped to just 0.11m. The curve is undeniably flattening. That changed everything, including the equity market trend.

Investors flocked to accumulate stocks that were available at heavily discounted prices with the first mover reaping the richest reward. “Surfing through snippets of recent economic data clearly shows signs of economic recovery,” said Syed Hussain Haider, strategist at JS Global.

Stockholders expect the revival of economic activity as revenue collection increases, car sales grow and cement despatches rise

He contended that the relentless upward push of the index during July reflected that the two months of sideways movement had left the market sufficiently well-rested. Some sectors like pharmaceutical and technology posted phenomenal performance.

“The latest bull rally, however, has been fuelled by cyclical stocks led by cements. The fixed income market has accordingly adjusted to the new reality and the previously anticipated cut in the policy rate of 50-100 basis points now seems unlikely,” he said.

He suggested that the IMF-specific anxiety seems to have lately been replaced by encouraging vibes from the Financial Action Task Force (FATF), China-Pakistan Economic Corridor (CEPC), progress on the construction of Diamer-Bhasha Dam and cheaper LNG. These developments have supported a positive momentum in the equity market and created the ideal environment for volumes to thrive.

As droves of investors flock back to the market, the daily traded volume stood at 826 million shares on August 6, representing a four-year high. The previous high of 903m shares was recorded in September 2016. “The massive drop in the policy rate to 7pc from 13.5pc has given stocks the space to be re-rated,” said Arif Habib, former chairman of the Pakistan Stock Exchange (PSX).

He said investors were banking on the revival of economic activity as healthy numbers relating to revenue collection, car sales and cement despatches poured in with the anticipation of improved quarterly results.

Mr Habib referred to a major development on August 6 in which the central bank allowed non-resident Pakistanis (NRPs) and Pakistanis having declared foreign assets to trade shares on the country’s stock exchange using funds available in their “NRP Rupee Value Account” or NRVA opened with any authorised dealer. Mr Habib said that government-denominated securities will also be offered to the NRPs going forward.

Next Capital Executive Director Zulqarnain Khan affirmed that the market was flush with liquidity as profit rates from banks have dipped and the government has barred financial institutions from investing in National Savings Schemes. “It is likely to channel the huge amounts in pension funds to the equity market,” he said. He cautioned that the KSE-100 index is not dividend-adjusted, which means that the level of 40,000 points can actually be 33,000 points or so.

It provides bigger space for growth as stocks were still trading at a cheaper multiple of seven times forward earnings compared to their regional peers. He lamented the absence of the influx of a vast number of new listings as too much liquidity was currently chasing too few shares. Vast potential existed for several sectors such as exploration and production owing to increasing international oil prices.

Mr Khan observed that construction activity had propelled the economy forward. Cement will continue to be the most sought-after commodity as the work on the dam picks up pace with the promised Chinese participation. Informed circles say that 40pc of cement despatches are making their way to the rural areas, he said. “The farmer’s income has improved owing to rising support prices of various crops. It’s being used for construction work in rural areas,” he said. It had also given rise to the use of white goods.

The central bank’s has given corporate entities the option to defer loan installment payments this year. This will provide companies with surplus cash estimated to be Rs460bn, much of which may be directed to the equity market.

Another market watcher confided that an amount of roughly $2bn might be saved from restrictive Haj, Umra and holiday travelling plans, which will be an investible sum. While the stock market rally in July-August had seen stocks gain values across the board, some sectors were luckier than the rest.

Faisal Shaji, strategist at Standard Chartered Securities, put the export-oriented IT and Communications sector at the top with scintillating growth of 92pc. Cement and steel sectors followed with a surge in values by 72pc and 78pc, respectively.

“Some underperforming sectors included banks as they faced the prospect of increasing non-performing loans and decreasing in interest rates,” said Mr Shaji. He said food and power generation sectors were other underperformers while textiles fared well in terms of exports though production suffered owing to lockdowns for about a month or more.

Published in Dawn, The Business and Finance Weekly, August 10th, 2020