KARACHI: Despite a surge in remittances and automobile sales, the stock market closed the week on a negative note due to uncertainty about the economic outlook amid growing political noise following the apex court’s landmark decision on reserve seats and new conditions imposed by the International Monetary Fund (IMF).

Surprisingly, the IMF announced on Saturday morning that it had reached a Staff-Level Agreement with Pakistan for a new 37-month $7 billion (SDR 5.3bn) Extended Fund Facility. Earlier, Finance Minister Muhammad Aurangzeb expressed hope on Thursday that an agreement with the Fund was likely this month, as the government had already met all the conditions for a new loan deal.

Despite the Muharram holidays next week, the stock market is expected to react positively to the much-needed IMF deal, which is crucial to meeting the country’s external debt repayment obligations in the current fiscal year, unlocking inflows from other lenders and friendly countries and attracting foreign investment.

Arif Habib Ltd (AHL) said the market began the week on a positive note as the benchmark index rallied on the first day. It closed at the highest-ever level of 80,672 points after hitting an intraday record of 81,087 points on Tuesday. However, the following day, the market witnessed a correction given new conditions of the IMF, such as the abolishment of the Pakistan Sovereign Wealth Fund and the proposal of a 45 per cent tax on agricultural income.

Inflows from overseas Pakistanis showed a sharp increase in June, the last month of the outgoing fiscal year. Remittances surged by 44pc year-on-year to $3.2 billion. Automobile sales reached an 18-month high of 13,284 units in June, a growth of 21pc month-on-month and 120pc year-on-year.

Meanwhile, the government raised Rs82bn and Rs442bn through Pakistan Investment Bonds and T-Bill auctions, coupled with three-month and six-month T-bill yields declining by 10bps and 18bps, respectively.

The foreign exchange reserves held by the State Bank of Pakistan recorded a meagre rise of $15.6m to $9.4bn in the week ending July 5. Meanwhile, the local currency remained stable at Rs278.40 against the US dollar in the outgoing week.

As a result, the KSE-100 index closed at 79,944.10 points after losing 269 points or 0.33pc week-on-week.

Sector-wise, negative contributions came from E&P (154 points), commercial banks (136 points), auto assemblers (61 points), power (48 points), and oil and marketing companies (34 points). Meanwhile, the sectors that mainly contributed positively were fertiliser (106 points), food & personal care products (71 points), textile composite (47 points), technology (32 points) and pharmaceuticals (17 points). Scrip-wise negative contributors were MCB Bank (102 points), Hub Power (100 points), United Bank Ltd (93 points), Pakistan Petroleum Ltd (77 points), and TRG Pakistan (57 points). Meanwhile, scrip-wise positive contributions came from Habib Bank Ltd (143 points), National Bank of Pakistan (104 points), Fauji Fertiliser Company (82 points), Systems Ltd (73 points) and Fauji Fertiliser Bin Qasim Ltd (63 points).

Foreign investors remained active, but their purchasing slowed to $4.0 million compared to a net buy of $7.7m in the preceding week. Major buying was witnessed in banks ($2.1m) and technology ($1.7m). On the local front, selling was reported by individuals ($2.6m) followed by mutual funds ($2.5m).

The average trading volume dipped 0.3pc to 439m, while the average value traded rose 13.6pc to $75m week-on-week.

AKD Securities Ltd said the market is expected to maintain a positive outlook despite the potential for a short-term lacklustre impact from recent political developments.

The rally overall is anticipated to persist due to the market’s attractive valuations, with the forward price-to-earnings ratio continuing to remain below 4.0x.

Published in Dawn, July 14th, 2024