Pakistan stock market review for the week by BMA Research

Equities continued to remain volatile in the outgoing week, with the benchmark index closing at 47,686pts, up 0.2% WoW. Despite positive triggers, including the approval of the Federal Budget and tamer-than-expected inflation data, the market caved into the profit taking sessions ahead of the financial year close with the index hitting highs and lows of 48,080pts and 46,900pts, respectively. Trading volumes declined by 10% WoW to average at 622Mn shares, whereas traded value fell by 4% WoW to clock-in at USD 107Mn.

A volatile week for equities: Amidst lukewarm investor sentiments over potential MSCI reclassification into FM and FATF disappointment, the week opened on a bearish note (↓ 600pts DoD) with stocks barely clinging on to 47,000 level. Additionally, with institutional investors hedging their bets ahead of the financial year close, the market remained under pressure throughout the week. However, positive news flow, including the National Assembly passing the federal budget with a majority vote, below-expected inflation reading for Jun’21 (9.7% vs. street estimates of 10.1%, courtesy easing food inflation), and exports hitting an all-time high of USD 25.3Bn in FY21 triggered market performance during the end of the week. Along with this, the news of over USD 1.5Bn record receipts in Roshan Digital Accounts also supported the momentum, and the index concluded the week with a slight gain of 83pts.

Developments in the power sector and higher crude oil prices kept energy chain in limelight: During the week, the news of National Accountability Bureau (NAB) allowing the Power Division to process payments to Independent Power Producers (IPPs) under Power Policy 2002 supported activity in power sector scrips. Additionally, World Bank’s approval of USD 800Mn loan for power sector reforms in the country positively impacted investor sentiments. On the international front, crude oil prices rose by roughly ~1.4% WoW to over USD 75/barrel amidst OPEC’s meeting to decide on output levels. Consequently, higher oil prices kept the local E&P stocks in the limelight during the week.

Data releases that kept investors engaged included 1) weekly forex reserves, which slightly increased by 0.2% WoW to USD 23.3Bn; 2) trade deficit data for FY21, which soared by 32.9% YoY to USD 30.8Bn, and 3) OMC sales, which jumped by 18% YoY to 19.4Mn tons in FY21. T-Bills auction result was also released during the week in which the government raised ~PKR 0.8Trn against massive participation of ~PKR 1.3Trn (96% in 3- and 6-months bills). The bids for 12-month bills were rejected, while the cut-off yields declined by around 1.7bps and 1.4bps for 3- and 6-month bills respectively, implying market expectations of a hike in interest rates in the medium-term. Additionally, rupee largely remained stable against the greenback, with the parity slightly increasing by 0.1% WoW to close at PKR 157.4 per USD.

Outlook: Going forward, we believe that the market will sustain its upward trajectory given the improving macroeconomic fundamentals and easing COVID-19 restrictions. Additionally, the upcoming result season is likely to support the index momentum in coming weeks. We advise investors to stay long in banks, cements, fertilizer, technology, power, chemicals, and autos sectors. Key announcements next week include the auction result for fixed-rate PIBs wherein the government plans to raise PKR 125Bn.

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