The local bourse reflected investor feeling of all gloom and doom when the index closed at 43,788 points (↓ 4.5% WoW), reporting the lowest close level this year. The cause of the rapid investor exit was mainly due to concerns about inflation, political uncertainty, PM’s approval on abolishment of corporate income tax exemptions. The last day of the week, however, saw investors returning in hoards and lift the index from its week low of 42,780 points, albeit slightly. Trading volumes improved by 12.0% WoW to average at 432Mn shares, similarly average trading value increased by 6.2% WoW to clock-in at USD 137Mn.

Political uncertainty and finance bill tax amendment drag the market down: Despite the victory of the present government in the vote of confidence in national assembly on Saturday last week, the index faced heavy selling pressure amid uncertainty around the election of Senate chairman. Additionally, the PM approved an income tax amendment bill last week for withdrawal of 80 different income tax exemptions on corporations to meet IMF conditions, which is expected to increase government revenue collection by ~ PKR 140Bn but conversely place tax burden on companies.

Furthermore, the National Command Operation Center (NCOC) held a meeting this week and decided to defer reopening of public places (schools, cinemas, and indoor wedding) from Mar 15 till further notice. On the international front, oil prices rose to record high of USD 70 per barrel earlier this week, the highest since Jan’20 but later dipped following an attack on the KSA’s largest oil facility. The week closed with the Brent and WTI trading at $69.8 and $66.1 per barrel, up 2.6% and 1.7% respectively.

Data releases through the week that kept the market flowing included: 1) Weekly FX reserves, which improved marginally by 0.1% WoW to USD 20.16Bn, 2) Workers Remittances for Feb’21, which increased by 24.1% YoY to USD 2.27Bn, 3) Weekly SPI number, which declined by 1.47% to 13.48% YoY, and 4) Auto sales for the month of Feb’21, which recorded a growth of 35% YoY to 16,436 units (PC, LCV & SUV).

Additionally, T-Bills auction results were also announced during the week wherein the government raised ~PKR 660Bn against the total participation of PKR 859Bn. Major participation of PKR 587Bn was witnessed in the 3 month T-bills, indicating investor interest in the short term. The investors are sceptical on the rising yield that SBP may increase interest rates before July’21.

Outlook: Considering the index rebound on the last day of the week, we believe the market is expected to stabilise and record modest gains in the upcoming week. Although, the spike in COVID-19 cases seem alarming but the gradual rollout of vaccines should ease the concerns. We reiterate Banks, E&Ps, Fertilizers, Autos, Steel and Cements as our preferred picks. Trade balance, FDI and LSM numbers are expected to be released next week.

Courtesy – BMA Capital Management Ltd.