KARACHI: The stock market snapped the eight-week long gaining streak in the outgoing five sessions of trading as the KSE-100 index pulled back by 669 points (1.7 per cent) and finished at 39,621.

Observers said the correction was due after the index had rallied by a massive 46pc from its five-month low in March. In the past eight weeks, the index had climbed 18.7pc to break the barrier of 40,000 points.

All of that compelled the week holders and those who traded on the side of caution decided to book profit which saw the benchmark movement around the 40,000 level.

Investor participation also was thinner with average volume down 24pc over the earlier week to 441 million shares while the traded value also declined 15pc to $107m. Foreigners, who seemed to have exhausted the sell-off in the preceding week with net buy of $8.7m again, resorted to sale with outflow clocking in at $4m. Their selling was witnessed in banking sector amounting to $3.2m and cement $2.9m. On the domestic front, insurance bought stocks worth $7.9m followed by individuals picking up shares of $7.3m.

Major decline to the index came from power generation and distribution that declined 5.6pc on the announcement of potential revision in existing power purchase agreements for most IPPs which were thought to revise downwards the annual capacity payments, reduction in current equity returns and removal of dollar indexation.

The second big drawback for investors in equities came in the form of Supreme Court judgement over the Gas Infrastructure Development Cess which went against the gas consumers who would be obligated to pay Rs417 billion in 24 instalments. It dented the performance of power, fertiliser, chemicals and cement sectors where investors fear large cash outflows or outright earnings downgrade. Others such as refineries, autos and steel which were driven by the bulls in the past two months witnessed selling.

On the flip side, oil and gas marketing companies (O&GMCs) closed higher by 2pc on the back of expected clearance of the circular debt position (as part of the agreements with IPPs).

Sector-wise positive contributions came from O&GMCs, up 39 points, pharmaceuticals 22 points, transport nine points, paper and board five points, and vanaspati and allied industries. Whereas declines came from power generation, falling 218 points and fertiliser 165 points.

Among scrips, gains were led by Pakistan Oilfields, higher by 33 points, Fauji Fertiliser 32 points, Sui Northern 30 points, Allied Bank 15 points, and Sui Southern 14 points.

News flow during the week included increase of 61pc in July FDI; government report highlighting its two-year performance; S&P notifying Pakistan’s long-term outlook ‘stable’; receipt of record $2.7bn remittances in the outgoing month; and textile exports up 14.4pc.

Moving forward, pundits visualised mixed performance as the market drew strength from declining trend in new Covid-19 cases which was grand for the economy, stability in local currency backed by improved forex reserves. Positive economic developments such as relating to remittances, foreign exchange reserves, and revival in cyclical demand (cement, steel and automobile) could also support the index.

Published in Dawn, August 23rd, 2020