This week trading commenced on a positive note continuing the trend from last Friday due to i) Government and their allies winning the seat of senate chairman and deputy chairman, ii) Pakistan Democratic Movement postponing their long march which was expected to start from last week of March, iii) Large Scale Manufacturing increasing by 7.85% in 7MFY21, and iv) Continuous appreciation of Rupee against USD. However, later in the week bears took charge and negative sentiments were fueled by i) Anticipation of possible rate hike in the monetary policy statement, ii) Rising cases of coronavirus as infection ratio surged to 8.0%, and iii) Drop in international oil prices resulting in selling across heavy-weight E&P scrips. The KSE-100 index closed at 44,901pts, up by 1,113pts or 2.54% WoW.

Contribution to the upside was led by i) Technology and Communication (296pts), ii) Commercial Banks (214pts), iii) Cements (107pts), iv) Oil and Gas Marketing Companies (89pts), and v) Refinery (61pts). Scrip-wise major gainers were TRG (227pts), HBL (140pts), SYS (66pts), UBL (64.01pts), and PSO (60pts). Whereas, scrip-wise major losers were OGDC (41pts), ENGRO (28pts), BAHL (26pts), MARI (10pts) and PMPK (9pts).

Foreigners accumulated stocks worth of USD 3.04mn compared to a net buy of USD 3.64mn last week. Major buying was witnessed in Commercial Banks (USD 6.46mn) and Cement (USD 1.52mn). On the local front, selling was reported by Banks (USD 11.21mn) followed by Companies (USD 8.18mn). That said, average daily volumes and traded value for the outgoing week were up by 11% and 4% to 483mn shares and USD 144mn, respectively.

Other major news: i) Reduced rates of income tax to be withdrawn, ii) Roshan digital account attracts $671m in six months, iii) Big industry posts 9.1 percent growth in January, iv) Rupee rises to 1-year high, v) FDI declines 30 percent to $1.30 billion in July-Feb, and vi) Auto-financing ‘all-time high’ at Rs273bn.

Outlook and Recommendation

Going forward, we expect the market to trade in green due to i) Central bank keeping policy rate unchanged, which is positive for the stock market, ii) Encouraging SBP projections as MPC noted that the current account deficit is expected to remain below 1% of GDP for FY21 while forecasting 3% GDP growth for FY21, and iii) Appreciation of PKR/USD parity. However, any surprise increase in domestic COVID-19 infection ratio may dampen investor’s sentiments. Our preferred stocks are OGDC, HUBC, HBL, MCB, FFC, LUCK, ACPL, PSO, ENGRO, MCB, INDU, UBL, and NML. The KSE-100 is currently trading at a PER of 6.8x (2021) compared to Asia Pac regional average of 12.2x while offering a dividend yield of ~6.8% versus ~2.8% offered by the region.

Courtesy – AHL Research