KARACHI: Uncertainty about the expected tough proposals in the upcoming federal budget, which are aimed at meeting the conditions set by the International Monetary Fund (IMF) for reaching a Staff-Level Agreement for a new loan programme, unsettled equity investors. As a result, the benchmark KSE index closed the short week in the red, contrary to the all-time high closing in the preceding week.

The market showed resilience despite initial selling pressure in the first two sessions due to nervous investors’ fears about new taxes, rising energy prices in the upcoming budget, and mounting political tensions. The bulls made a strong comeback in the last session, supported by a slight decrease in the yields on government securities. This comeback reflects market expectations that the State Bank of Pakistan will likely reduce its policy rate by a significant margin, creating ample room for a cut in the next monetary policy review this month.

Arif Habib Ltd (AHL) said the market witnessed a mixed sentiment during the outgoing week amid the anticipation of the upcoming Federal Budget 2024-25 and the announcement of the monetary policy rate by SBP. Moreover, the government raised Rs501bn through T-bill auction and the cut-off yield across all tenors depicted a decline in the range of 29 to 60 basis points. In addition, the secondary market yields across all tenors also declined in the range of 1 to 44bps. Furthermore, SBP exchange reserves witnessed a reduction of $63 million to $9.09bn in the week ending on May 24. The rupee depreciated by 12 paise or 0.04pc 278.3 against the US dollar week-on-week.

As a result, the KSE-100 index declined by 105 points or 0.14pc to close at 75,878.48 week-on-week.

Sector-wise negative contributions came from E&Ps (286 points), fertiliser (121 points), OMCs (89 points), refinery (28 points) and textile composite (27 points). Meanwhile, the sectors that mainly contributed positively were technology (174 points), leather & tanneries (97 points) and power (81 points). Scrip-wise negative contributors were Fauji Fertiliser Company (128 points), Oil and Gas Development Company Ltd (117 points), Bank Al-Habib (82 points), Pakistan Petroleum Ltd (77 points) and Bank Alfalah (56 points). Meanwhile, scrip-wise positive contributions came from Systems Ltd (179 points), Hub Power (108 points), Service Industries Ltd(97 points), Meezan Bank Ltd (71 points) and Millat Tractor (66 points).

Foreign buying was witnessed during the week, clocking in at $5.5 million compared to a net sell of $12.1m last week. Major buying was seen in commercial banks ($2.7m) and ‘all other sectors’ ($1.9m). On the local front, selling was reported by mutual funds ($8.9m), followed by companies ($8.0m). The average trading volume shrank 19.9pc to 447mn shares, while the average value traded fell 5.2pc to settle at $61.4m week-on-week.

AHL said developments related to the federal budget and the new IMF programme will influence market sentiment and investment decisions in the coming week.

Published in Dawn, June 2nd, 2024