Stocks to struggle amid economic uncertainty

KARACHI: Pakistan's capital market would probably drift both ways without a clear heading down the road as all eyes are set on the fiscal and economic fronts since much of the outlook remains far from certain, analysts said.

“Following the disbursement of a tranche by the IMF, the government is expected to unlock further foreign economic assistance from various international creditors, in addition, to flood relief aid from the world and other financial institutions,” said a weekly stock review by Arif Habib Ltd.

“However, investors will remain cautious given the current overall socio-economic situation of the country. Albeit, we expect the market to be range bound in the upcoming week.”

In the outgoing week, the market was mostly jittery and mixed. The trade week got off to a negative start amid concerns over the massive floods and their overall impact on the economy.

However, the market soon recovered following the approval and subsequent disbursement of $1.17 billion tranche from the IMF to Pakistan. As a result, rupee strengthened against the greenback, closing the week at Rs218.98, up by Rs1.68 or 0.8 percent week-on-week.

The uptrend was short-lived as the announcement of the inflation numbers for the month of August 2022 (a 47-year high) changed the overall sentiment of the market.

In addition, trade numbers released during the week too added to the economic worries as the deficit jumped 29 percent month-on-month in August.

The market closed at 42,309 points, shedding 282 points, down by 0.7 percent, week-on-week.

Average volumes clocked in at 211 million shares, down by 15 percent week-on-week, while average value traded settled at $31 million, down 15 percent week-on-week.

In the outgoing week, foreign investors made exits worth $0.74 million compared to a net-selling of $1.87 million last week.

Major selling was witnessed in commercial banks ($1.8 million) and power sector ($0.8 million).

On the local front, buying was reported by banks/DFIs ($3.0 million) followed by individuals ($2.4 million).

Sector-wise negative contributions came from banks (118 points), E&Ps (90 points), automobile assembler (61 points), miscellaneous (40 points) and textile composite (31 points). Stocks that dragged the index down were HBL (73 points), TRG (47 points), PSEL (41 points), ENGRO (39 points), and POL (36 points).

Major supporting sectors were cement (110 points), and leather & tanneries (25 points), while stocks that strengthened the market in the week included SYS (76 points), EFERT (48 points), KOHC (32 points), FABL (31 points), and SRVI (25 points).

KASB Pakistan Research said after a flying start of the week on the receipt of the IMF tranche, which the market had already priced in, stocks took a step backwards as concerns over flood-led economic losses in the country deepened.

“The agriculture sector is expected to face the most losses as crops have been ruined in the floods. Cotton crop yields will be immensely low, so yarn prices are set to soar in the near future which will have an adverse impact on the textile sector,” the brokerage said.

The KASB analysts warned it would also lead to a decline in exports and the country would have to import basic crops for the local demand.

“So, we can see a built-up in pressure on the trade balance as well,” the brokerage added.