KARACHI: Although the stock market ended the outgoing week with gains due to hopes of an interest rate cut, uncertainty on the external financing front turned investors cautious about the economic outlook.

AKD Securities Ltd said the market remained rangebound during the outgoing week as investors waited for key events, including the International Monetary Fund (IMF) executive board’s approval and the rebalancing of the FTSE, with market movement influenced mainly by corporate results.

The government is exploring every possible option to bridge the external financing gap, including approaching commercial banks in the Middle East. Furthermore, outflows related to FTSE rebalancing began as changes would take effect from Sept 23. Moreover, after almost three years, inflation eased to a single digit, clocking in at 9.6pc for August. Consequently, the real positive interest rate stood at nearly 10pc, and a differential between policy rates and 3-month secondary yield at 1.74pc, leading the market to expect a rate cut in the upcoming State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) meeting.

Furthermore, a 16pc rise in exports led to narrowing the trade deficit by 21pc year-on-year to $1.68bn in August. Additionally, declining international oil prices, with WTI falling below $70 per barrel, have raised hopes for a reduced oil import bill and lower POL prices, which could help further control inflation. However, with the FBR missing its tax collection target in August, the likelihood of a mini-budget remains high if the shortfall persists. Meanwhile, the finance minister has indicated a further reduction in the revised Federal PSDP budget of Rs1.1tr due to fiscal constraints.

Arif Habib Ltd (AHL) said the market commenced the week on a negative note, given the investors resorted to profit-taking. The government is hopeful that all the conditions and requirements of the lender will be met in time and Pakistan’s case will be approved by its board. Furthermore, the petroleum sales witnessed a decline of 14pc year-on-year in August. Moreover, urea and DAP sales plummeted by 14pc and 70pc, respectively, in August. The total cement sales declined by 26pc year-on-year in August. However, the State Bank of Pakistan’s reserves climbed $33m to $9.4bn.

As a result, the benchmark KSE 100 index settled at 78,898 points after gaining 410 points or 0.5pc week-on-week.

Sector-wise positive contributions came from exploration and production (248 points), cement (191 points), fertiliser (68 points), power generation (61 points) and auto assembler (56 points). Meanwhile, the sectors that mainly contributed negatively were commercial banks (89 points), chemical (40 points), and technology (39 points). Scrip-wise positive contributors were Mari Petroleum (172 points), United Bank Ltd (117 points), Kohat Cement (85 points), Oild and Gas Development Company (82 points), and Engro Fertiliser (63 points). Meanwhile, scrip-wise negative contributions came from Meezan Bank (170 points), Pakistan Oilfield Ltd (54 points), National Bank of Pakistan (51 points), Habib Bank Ltd (49 points), and Colgate-Palmolive (35 points).

Foreign selling clocked in at $6.7m compared to a net buy of $3.7m last week. Significant selling was witnessed in fertiliser ($2.6m) and exploration and production ($2.2m). Individuals reported buying ($5.7m) on the local front, followed by Other Organisations ($3.3m). The average volume rose 11.8pc to 676m shares, while the value traded surged 22.5pc to $52m.

According to AHL, the equity investors will closely monitor the MPC meeting scheduled for Sept 12 amid the expectation of a 150bps cut.

IMF executive board approval and continuation of monetary easing would keep equities in the limelight. These factors, along with an improving external account position and a better country credit rating, would keep foreigners’ interest alive, said AKD Securities.

Published in Dawn, September 8th, 2024