Pakistan Equities bounced back during the week with the index climbing 620 points as the market participants gained much-needed clarity related to lockdown measures taken by the government to curb the virus. Additionally, although in line with market expectations, the investors welcomed the decision by the State Bank of Pakistan (SBP) to keep the key policy rate unchanged at 7.0% for the next two months. The KSE-100 index inched up by 1.5% WoW to conclude at the level of 40,807. During the week, investor participation climbed by 66% WoW with average trading volumes clocking-in at 284Mn, whereas value traded improved by 56% WoW to average at USD 68Mn. For the week, foreign investors continued to offload positions as the net sell clocked-in at USD9.3mn. This selling was mainly absorbed by local companies and insurance with inflows of USD3.4mn and USD2.9mn respectively.
The week started on a bearish note with KSE-100 index plunging by 555 points on Monday on account of intense spike in COVID 19 cases which coincided with the ongoing rollover week at the bourse. As of 26 November 2020, the outstanding futures value was recorded at PKR 6.54Bn as compared to PKR 12.2Bn on 20th November 2020. Additionally, the higher prospects of stricter lockdown measures across the country kept investors sentiments dampened. Currently, the active infections stand alarmingly over the 45,500 mark, with daily reported average cases over 3000. The government imposed new restrictions during the week which included school closures, limited business timings, and ban on indoor gatherings. However, the market recovered after confirmation by the Prime Minister to not shut down businesses and factories. Following the news, the KSE-100 index surged past the 41,000 mark yesterday. Moreover, the recovery in the global equities market on hopes of arrival of effective COVID-19 vaccines also triggered performance in the local market.
During the week, E&P stocks also remained in limelight as the investors were buoyed by the surge in oil prices to near pre-COVID 19 levels. WTI Crude oil prices traded above USD 45.7 per barrel, while Brent oil prices soared past the USD 48.5 mark amid vaccine optimism and Joe Biden’s transition to the White House. The rally faltered near the end of the week over supply concerns and doubts related to vaccine distribution. Although still high with over 6.5% WoW increase, WTI Crude oil closed at USD 45.3 per barrel, while Brent oil closed at USD 48.1 per barrel.
Sectors which lifted the index during the week were Technology & Communications (↑ 8.0% WoW), E&Ps (↑ 6.9% WoW), and chemicals (↑ 2.7% WoW), while OMCs (↓ 0.7% WoW) and automobiles (↓ 0.7% WoW) lagged behind.
Key data releases through the week include the following: 1) SBP FX reserves surged by USD 484Mn to reach USD 13.4Bn last week, 2) Sensitivity Price Indicator (SPI) showed 0.9% WoW to 141.7 points, and 3) During 10MCY20, urea off-take improved by 3% YoY to stand at 4.6Mn tons, whereas DAP off-take jumped by 12% YoY to clock-in at 1.6Mn tons. Moreover, rupee significantly recovered by around 1.0% to ~PKR 159.4 against dollar ahead of the Thanksgiving holiday in US as opposed to the one-month low it hit on Monday with the parity standing at PKR 161.1.
Considering the improving macroeconomic indicators, strengthening rupee against the greenback, and unchanged policy rate, we believe KSE-100 index will continue its positive momentum in the coming week. We still advise investors to remain cautious amid soaring COVID-19 infections despite the announcement by the government to keep businesses and factories open. Accumulating positions on dips will be the best strategy going forward. Additionally, PIB (floaters) and treasury bill auctions are also scheduled next week in which the government plans to raise PKR 430Bn cumulatively. We continue to prefer Banks, E&Ps, OMCs, and Pharmaceuticals.
Report by: BMA Research – BMA Capital Management Ltd.