Pakistan bourse expected to remain volatile

KARACHI: The equity market remained in the negative territory during the week ended February 24, 2023 over expected monetary tightening, coupled with the rising political temperature, as elections in Khyber-Pakhtunkhwa and Punjab hang in the balance, analysts said.

Besides, the government inched closer to reaching an agreement with the International Monetary Fund (IMF) with the approval of the mini-budget in the National Assembly this week.

The benchmark KSE-100 Index shed 410.85 points, or 1 per cent, to close the week at 40,707.76 points.

The All-share average traded volume during the week declined 10 per cent to 138 million, compared with the previous week level of 154 million shares/day.

An analyst at Pearl Securities said the stocks remained under pressure during the week due to delays in the completion of the ninth review and subsequent release of the much-needed $1.2 billion tranche.

“The events, which most impacted Pakistan’s equity market during the week included National Assembly passing Rs170 billion Finance (Supplementary) Bill 2023 and $700 million debt inflow from China.”

Moreover, the foreign direct investment (FDI) in January 2023 increased 101 per cent, external debt servicing in the first half of FY23 increased 70 per cent, foreign exchange reserves held by the SBP increased $66 million to $3.258 billion during the week ended February 2023.

Sector-wise, the cement sector stood out as a top performer, gaining 3.1 per cent, while E&P declined 5.9 per cent, autos went down 4.8 per cent and banking declined 2.5 per cent during the week.

The State Bank of Pakistan’s (SBP) recent T-bills auction boosted the market expectations of possible policy rate hike of 200 to 250bps in the next monetary policy, which is due on March 16, 2023.

A hike in the interest rate bodes negative for the manufacturing concern, especially cement, steel and textiles, as it may further affect the production because the KIBOR-linked financing cost will increase, which will limit their margins.

Already, the cost of doing business is high with supply side shocks, amid import restrictions creating hurdles for the continuation of the businesses.

However, for the listed space, the analysts expect heavyweight banking sector to ride the benefit of interest rate cycle with the possibility of further improvement in the deposit growth, which may offset the concerns of non-performing loans, going forward.

Besides, the cash rich companies will enjoy the benefit of the recent rise in the T-bill yields, as they will park their access cash to fixed income securities, which are currently offering up to 20 per cent markup.

Going forward, the analysts expect the market to remain volatile until the successful conclusion of the IMF’s ninth review and suggested the investors to adopt the “Sell on Strength” strategy in the coming week.