Stock market may show strong signs of comeback

An analyst at Arif Habib Limited said the rollover of Chinese loans worth $2.3 billion was on the cards, which would conserve the falling reserves.

“Further, a dip in the international oil prices, amid demand slowdown from China and emergency crude stockpile releases by the International Energy Agency (IEA) are likely to shift the bourse towards the green zone.”

In the outgoing week, the market opened to a bloodbath session, shedding 1,250 points on the back of surprising dismissal of the no-confidence motion by the National Assembly deputy speaker; followed by the dissolution of the National Assembly.

Moreover, the rupee depreciated to its all-time low of 188/dollar, amid sliding foreign exchange reserves and the political uncertainty.

This necessitated a massive policy rate hike of 250bps to 12.25 per cent by the State Bank of Pakistan in an emergency meeting held on April 7.

Albeit, the bourse welcomed a steep revival of the investors’ confidence, given the clarity obtained through the Supreme Court’s much-awaited judgement, rejecting the deputy speakers’ dismissal of the vote, together with a decreasing oil prices further adding to the gains.

The KSE-100 shares Index declined 1.56 per cent to close at 44,445 points.

Waqas Ghani at JS Global Capital said that it was a rollercoaster ride at the local bourse this week.

“The week started on a negative note in response to uncertainty on the political front where the index lost 1,250 points on the first trading day.”

Average daily traded volumes clocked-in at 153 million shares/day. The net foreign selling for the week clocked-in at $3.8 million.

Umair Nasir at Topline Securities said that the key question for the new government would be whether it would continue to run the government till the next general elections, scheduled in the next one-and-a-half years or will it carry out early elections.

“It is likely that the new government will carry out electoral reforms and then call early elections in a few months. Given the economic challenges, the country is facing and the stiff opposition that Imran Khan-led PTI party may offer, prolonging coalition government, will not be easy.”

Along with the political challenges, the new government will also face key economic challenges to deal with. The International Monetary Fund (IMF) talks with Pakistan had been deferred due to the political instability in the country recently.

Miftah Ismail, former finance minister of the largest opposition party Pakistan Muslim League (PML-N), in his recent interview, said that the new government would continue engagement with the IMF but try to renegotiate the programme on softer terms.

Strong relations with other countries, including the US, China, Saudi Arabia will also be key, as it will determine the outlook of foreign flows to the country and rollover of the maturing debt.

To note, Pakistan’s foreign exchange reserves have come down 23 per cent in the last two months to $17.5 billion as of April 1, 2022.

Another key challenge for the new government will be the increase in fuel prices. The government is already giving a fuel subsidy of around Rs60 billion/month on petroleum products, which is putting a drain on its fiscal account. The adjustment in gas and electricity tariffs will also be key initiative, the new government will have to take.

Analysts believe the import restricting policies will also continue in the new government, as imports are rising at a rapid pace.

The SBP had already initiated the process by increasing the list of items that is subject to 100 per cent cash margin requirement to control inflation. It will also be interesting to see if SBP Governor Dr Reza Baqir continue or not.