PSX weekly review: KSE-100 rebounds amid monetary policy announcement

• Benchmark KSE-100 index gained 740 points or 1.6% during the week to to settle at 46,489.41 points. 
• Trading remained volatile throughout the week with the index finishing three out of five sessions in the red.
• Foreign selling continued this week, clocking at $25 million against a net sell of $5.3 million recorded last week.

KARACHI: The Pakistan Stock Exchange (PSX) recouped losses from the previous week with the benchmark KSE-100 index gaining 740 points or 1.6% to settle at 46,489.41 points. Trading remained volatile throughout the week with the index finishing three out of five sessions in the red.

The week started on a negative note as a result of uncertainty regarding the International Monetary Fund (IMF) disbursements and mounting inflationary pressure.

However, the sentiment reversed on Tuesday and the market gained momentum with the government agreeing to pay Rs190 billion to independent power producers (IPPs) and unchanged petroleum prices.

Unfortunately, investors failed to maintain the momentum and the market recorded losses on Wednesday and Thursday as in a surprise move, the State Bank of Pakistan (SBP) decided to move its next meeting forward from the previously announced date of November 26, 2021.

The schedule change had sparked speculation that the State Bank may be tightening interest rates to control inflation.

Moreover, investors kept a wary eye on developments on the political front, with the joint sitting of the Parliament forcing many to watch from the sidelines during the two sessions.

Fortunately, the anxiety was temporary as a rally was witnessed on the last day of the trading week as investors became optimistic due to the large-scale manufacturing Industries (LSMI) output number that increased by 5.15% in the first quarter (July-September) of the current fiscal year 2021-22 compared to the same period of the last fiscal year 2020-2021, as almost all major manufacturing sectors posted growth.

Nonetheless, some volatility was observed due to the anticipation that the SBP was set to announce a new benchmark interest rate towards the end of the session, where most believed the policy rate would be increased.

Later, in line with market expectations, the central bank increased its benchmark policy rate by 150 basis points to 8.75% for one month.

Other major developments during the week were: Adviser to Prime Minister on Finance and Revenue Shaukat Tarin outlined five actions demanded by the IMF, the government decided to pay IPPs Rs190 billion as equity of DISCOs, remittances touched $10.6 billion in July-October, and foreign direct investment declined by 12% in four months.

Foreign selling continued this week, clocking at $25 million against a net sell of $5.3 million recorded last week. Selling was witnessed in commercial banks ($14.7 million) and fertiliser ($4.7 million).

On the domestic front, major buying was reported by insurance companies ($13.5 million) and companies ($7.7 million).

During the week under review, average volumes clocked in at 245 million shares (down by 23% week-on-week), while average value traded settled at $53 million (down by 17% week-on-week).

Major gainers and losers of the week

Sector-wise positive contributions came from banks (+430 points), fertiliser (+127 points), cement (+158 points), exploration and production (+140 points), and power (+43 points), whereas negative contributions came from technology (-176 points), and fast-moving consumer goods (-41 points).

Scrip-wise major gainers were Meezan Bank (+96 points), Lucky Cement (+76 points), UBL (+73 points), Pakistan Petroleum (+72 points) and MCB (+71 points). On the flip side, major losers were TRG Pakistan (-233 points), Unity Foods (-32 points) and PSX (-16 points).

Outlook for next week

A report from Arif Habib Limited predicted that following clarity regarding the monetary policy, “we believe the market will react accordingly next week”.

“The recent bill to make SBP autonomous, as well as the MPC’s stance, should now effectively remove another pre-condition of the IMF and therefore, we believe that market sentiment is hinged upon announcement of the IMF package,” it said, adding, once through, the market is likely to post a rebound.

“The KSE-100 is currently trading at a PER of 4.9x (2022) compared to Asia-Pacific regional average of 14.8x while offering a dividend yield of 8.4% versus 2.2% offered by the region,” the brokerage house stated.