Equities at the local bourse witnessed another week of volatile trading sessions, with the index wrestling between a high and a low of 45,105pts and 44,284pts, respectively, to conclude at 44,477 level (↓ 394pts or 0.9% WoW). The market, once again, succumbed to concerns related to surging commodity prices, depreciating PKR, upcoming IMF talks, and foreign selling on account of MSCI reclassification to Frontier Markets (FM). Consequently, the average traded volumes continued to remain low at 265Mn shares (↓ 25% WoW), whereas daily traded value also dropped to USD 60Mn (↓ 21% WoW).
Stocks caved into the IMF worries, devaluing PKR, and foreign selling: Local equities once again remained under selling pressure during the week as investors were wary on account of continued depreciation of PKR/USD parity, which climbed to its highest ever level of PKR 170.9/USD during the week. On the other hand, foreign selling continued unabated in Banks, Fertilizer and E&P sector which weighed in on the index performance. Additionally, lack of clarity on the IMF front, with the key condition for the resumption of loan program to revise the energy tariffs upwards, also worried investors. However, as per reports, the IMF team is largely satisfied with the revenue collection performance of the tax machinery during 1QFY22, where they surpassed the target by PKR 186Bn to PKR ~1.4Trn in 1QFY22. Along with this news, the start of trading in Octopus Digital shares and hopes of strong quarterly earnings helped ease the selling pressure on the index towards the latter half of the week.
Surging commodity prices continued to weigh in on investor sentiments: During the week, international oil prices tested its recent highs, with Brent surpassing USD 83 per barrel and WTI going past USD 78 per barrel, owing to OPEC’s decision to stick with their existing output policy despite a global rebound in fuel demand. Local investors remained concerned as rising crude oil prices add to inflation fears and external account pressures. Additionally, the ongoing energy crunch in Europe and China, with coal and other commodity prices still trading at multi-year highs, continued to worry market participants.
Major data releases during the week included: 1) SBP reserves fell by 0.65% WoW to USD 19.2Bn; 2) Trade gap widened by over 100% YoY in 1QFY22 to USD 11.7Bn; 3) Cement offtake fell by 5.7% YoY to 12.8Mn tons during 1QFY22 as against 13.6Mn tons in SPLY; and 4) Total petroleum sales surged by 29% YoY to 1.96Mn tons in Sep’21. The T-Bill auction results were also announced during the week, in which the government raised PKR 584Bn from 3- and 6-month bills against a total participation of PKR 826Bn. The bids for 12-month bills were rejected, whereas, on the other hand, the cut-off yields for 3- and 6-month bills increased by around ~21bps, indicating that the recent increase in policy rate by 25bps has largely been priced in.
Outlook:
Overall, we reiterate our favorable outlook of local equities given the successful conclusion of IMF talks, attractive market valuations, and upcoming quarterly result season. However, the index may remain in pressure in the near-term due to the consistent devaluation of PKR against the USD, continuous surge in global commodity prices, reversal in monetary stimulus, and uncertainty on the geopolitical front. Hence, any short-term dips should be taken as an opportunity to accumulate scrips in Banks, Fertilizers, Steel, and Technology sectors. Key data expected to be announced next week includes the release of auto sales numbers.
Courtesy – BMA Research