Market Review for the week by BMA Research

Pakistan Equities, once again, succumbed to COVID-19 related uncertainties as KSE-100 index sank to three week low of 39,888 pts (down 1,378 pts, ↓3.3% WoW). The total active cases and infection ratio in the country, although still below peak levels, have continued to inch up gradually, crossing 11,500 mark with average daily new infections standing between 750-800. Concerns over re-enforcement of lockdowns by the government to curb the spread kept the investor sentiments bearish.

During the week, value traded averaged at USD 116Mn, whereas the volumes clocked-in at an average of 469Mn. Foreign investors remained heavy sellers during the 4-day week as they offloaded equities worth USD21.3Mn. During CY20TD, foreign investors have sold USD 426.7Mn worth of stocks.

The market kicked off the week on a positive note with the index gaining 584 points on Monday amidst strong corporate profitability announcements and fading uncertainty related to FATF. However, despite outstanding financial results, local investors took cue from the slump in the international equity markets amid soaring COVID-19 infections and resorted to profit-taking during the rest of the week. Uncertainty related to upcoming US presidential elections and second wave of COVID-19 across the globe kept the global markets under pressure. The key global markets including Dow Jones index lost 943 points and NASDAQ slipped by 426 points today. The oil market fared no better as the Brent oil prices tumbled by 6.5% WoW to a three-week low of USD 38.97 per barrel. In addition to above, trading in the local market remained volatile on account of political uncertainty and future rollover trades. As of 28th October 2020, the outstanding futures value was recorded at PKR 7.9Bn (PKR 12.8Bn on 23rd October 2020). Also, concerns over spiralling inflation, especially food, dampened inventor sentiments.

Furthermore, the key data released through the week include the following: 1) Banking spreads plunged by 168bps YoY to clock-in at an average of 4.49% in Sep’20; 2) Urea off-take declined by 3.1% YoY to 393K tons whereas DAP off-take surged by 9% YoY to 229K tons during Sep’20; 3) Fiscal deficit for 2MFY21 reported at PKR 415Bn (0.9% of GDP) as against 499Bn (1.2% of GDP) in SPLY; and 4) Imports (Goods) increased by 17.9% YoY to USD 3.81Bn while Exports improved by 29.2% YoY to USD 1.95Bn.

Other major news for the week include the decision by the government to hike the gas tariff for CNG, IPPs, Captive power plants and general industries. Additionally, NEPRA has proposed to increase the power tariff by PKR 1.36 per unit under the monthly Fuel Price Adjustments (FPA) for the month of Sep’20.

Sectors which dragged the index down during the week include Refineries (↓ 9.6% WoW), Textiles (↓ 7.2% WoW) and OMCs (↓ 5.1% WoW); whereas Autos (↑ 2.1% WoW) and Power (↑ 0.6% WoW) remained the top-performing sectors.

Outlook

As the second wave of coronavirus resurfaces, we advise investors to remain cautious amid the looming threat of smart lockdown and concerns over high inflation. However, the market may rebound on account of outstanding corporate results and further appreciation of rupee against the greenback. We continue to prefer Banks, E&Ps, OMCs, and Pharmaceuticals.

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