Stocks witnessed a wobbly week as the alarming increase in COVID-19 cases and fear of new rounds of lockdown fuelled market volatility. The benchmark index, however, ended the week with a gain of 886 points (↑ 2.0% WoW) to settle at 45,186 level. The rising value of PKR and expectations of strong corporate profitability in the upcoming result season supported the index. Traded volumes averaged at 410Mn shares (↑ 9% WoW); whereas traded vaue clocked-in at USD 122Mn (↓ 8% WoW).
Surge in coronavirus infections and political uncertainty kept the market under pressure: The week opened on a bearish note with the benchmark index losing over 750 points as the country grappled with the worsening third wave of COVID-19. Investors feared the imposition of lockdowns as the average daily infections crossed the 3,500 mark. The government’s decision to reconstitute the Economic Advisory Council (EAC) and the change of finance minister ahead of the budget season also dampened the investor sentiments. However, stocks witnessed a rebound by the end of the week amid improving pace of vaccine rollouts, continued upward stride of PKR against USD (↑0.3% Wow) and the extension in G20 debt relief till Dec’21. Technology stocks stayed in limelight over the week, primarily due to the announcement by the Prime Minister to provide several incentives to the sector.
Weak economic growth projections by IMF triggered massive foreign selling: During the week, foreign institutional investors were net sellers of USD 9.5Mn mainly due to subdued economic growth projections shared by the IMF and World Bank for FY21 at 1.5% and 1.3%, respectively, as the country struggles to contain the third wave of infections. This is in stark contrast to the central bank’s growth forecast of 3% for FY21.
Data releases that kept the investors engaged included 1) weekly SBP reserves, which fell by 1.1% WoW to USD 13.5Bn; and 2) total government debt, which surged by 9.6% YoY to reach an all-time high of PKR 36.6Tn in Feb’21. T-Bill auction results were also released during the week in which the government raised ~PKR 0.8Tn against massive participation of ~PKR 2.1Tn. Major interest was seen in 3-months bill with participation of nearly PKR 1.2Tn while the bids for 12 months bill were rejected, indicating investor expectations of hike in interest rate in the near term.
Outlook: Going forward, we believe that the market will sustain its upward trajectory given the resumption of the IMF program, improving macroeconomic fundamentals and the rising value of Rupee against the dollar. Disbursement of circular debt payment to IPPs and upcoming result season will most likely drive the index performance in the coming weeks. We recommend investors to view any dip as a buying opportunity. Fertilizers, Autos, Steel, and Cement remain our preferred picks. Key data expected to release next week include the PIB (fixed rate) auction result and monthly auto sales number.
Courtesy – BMA Research