After several relentless attempts, the stock market finally closed above the 45k level on the last day of the trading week. The index settled at 45,175 ppt (↑2.1% WoW), having witnessed a high and low of 45,245ppts and 43,630ppts respectively. The market faced severe pressure after the government issued notification of a 9-day long lockdown but investors optimism kept the market afloat. However, the average trading volumes declined by 29% WoW to settle at 241Mn shares and the trading value also declined by 41% WoW to average at USD 70Mn.
Energy sector payment approval and decline in Covid cases: One of the positive news flow during the week was the approval of the first instalment to 35 independent power producers (IPPs) of around PKR 90Bn, which had been long due. Additionally, the active number of Covid cases in third wave have started to decline from their peak of 91,547 cases and the decline has continued in the past week. On the international oil front, the Brent and WTI closed at $69.2 and $65.8 per barrel, up 2.9% and 3.4% WoW, respectively.
Lockdown to control third wave and higher than expected monthly inflation at 11.1% kept the market under pressure: Despite decrease in active covid cases (↓7.7% WoW), the 9-day lockdown from 8th-16th May will materially reduce economic output of the country. This had investor caught up on whether to invest further or exit the local bourse. Moreover, inflation in the month of April jumped to 11.1%, the highest rate in the past 13 months and significantly higher than market expectations. Hike in inflation left investors concerned about future interest rate despite SBP’s forward looking guidance on gradual interest rate increases in their MPC meeting notes.
Data releases through the week which kept the market engaged included: 1) Cement despatches for the month of Apr’21, which increased by 40.4% YoY to 4.94Mn tonnes; 2) POL sales number for the month of Apr’21, which swelled by 57% YoY to 1.67Mn tonnes; and 3) Import and export numbers for the month of Apr’21, which increased by 62% and 130% YoY to $5.19Bn and $2.19Bn, respectively. Moreover, T-Bill auction results were also released during the week in which the government raised ~PKR 0.62Tn against immense participation of ~PKR 1.62Tn. Major interest was seen in 6-months bill with participation of nearly PKR 906Bn, indicating investor expectations of interest rate hike in the medium term, while bids for 3- and 12-month bill were PKR 558Bn and PKR 154Bn respectively.
Outlook: Considering the extended lockdown week is already incorporated in investor activity, we expect the market to open on a strong note in the week following the Eid festival holidays. However, major concern is regarding the direction of Covid cases. We recommend investors to accumulate scrips in the Fertilizers, Autos, Steel and Cements sector as strong performance is expected in the post lockdown week.
Courtesy – BMA Capital Management Ltd.