KSE-100 index ends week on a positive note, but market stability still to be seen
Summary
“Things are getting better” says Governor State Bank of Pakistan (SBP) last Thursday July 11 at an interactive dialogue with the President World Economic Forum, Borge Brende, arranged by Pathfinder group. This week on Monday SBP’s Third Quarterly Report says that despite stabilization phase led by demand management policies, vulnerabilities in the inflation, external and fiscal sectors persisted, which suggest that current stabilization agenda needs to be reinforced with deep-rooted structural reforms.
The appointment of Ms. Shamshad Akhtar former governor of SBP as advisor and the rumors of removal Shabbar Zaidi Chairman Federal Board of Revenue (FBR) and then clarification by the government put questions in the mind of investors as to Will the Hafeez-Shabbar-Baqir formula work? Has policy rate attained its peak? Will the exports (ever) rise? These are some of the questions dwelling in the minds of investors and creating uncertainty. Besides economy damaging news of $5.9 billion penalty awarded in the terminated Reko Diq mining contract. Court cases have so far not yielded any recovery of looted wealth, while political activism is on the rise.
The stock market as such has no clear direction and is in a depressed mode. During the week the market reached its lowest level and trailed 32,000 level to close on Friday at 32,458.77 shedding 1,214 points. The average volume was 105m an improvement over last week of 51m shares. The foreigners remained buyers with $6.43m while Mutual Fund were sellers by $19.26m. The market capitalization eroded by Rs.230 billion to Rs.6.575 trillion.
The stock market opened on Monday with the fear of rise in policy rate to be announced on Tuesday by the SBP as market has this expectation as inflation rate were increasing. During the day, the KSE-100 Index dropped by 714.44 to close at 32,958.35. The uncertainty about traders strike also led to decline in the Index. The volume increased to 69m.
On Tuesday, there are rumors in the market for no policy rate change to be announced, which led the market to close flat with increase of Index by 13.67 points to close at 32,972.02. The volume surged to 139m.
The market continued with modest gain of 9.97 points on Wednesday to close at 32,981.99 but volume declined by 20% to 112m.
On Thursday, the stock market again came down by 672 points as investors remained haunted by the IMF program. Market started positively but soon succumbed to selling pressure to close at 32,309.54.
On Friday the news of release of Stock Fund by next week. The news brought positivity in the market and added 149.23 points to close at 32,458.77.
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Participants/Activity
On average shares of 316 companies were traded. Of these 102 were gainers and 95 were losers and 19 remained unchanged.
Foreigners were net buyer of $6.43m during the week; companies were buyer by $1.12m, Banks were seller $0.12m; Mutual fund net seller $19.26m and individuals net buyers $9.85m.
Volume leaders during the week were: Maple Leaf Cement 55m; TRG Pak Ltd 50m; K-Electric Ltd 43m; Bank of Punjab XD 18m; Lotte Chemical 18m; Pak Elektron 8m; Unity Foods Ltd 6m; D. G. Khan Cement and Habib Bank 5m each.
Triggers
- Current Account Deficit (CAD) shrank by another 31.7 % in July to June period. The CAD came in at $13.587 billion in this period where it was $19.897 billion in the same period last year, a fall of 4.87 percent of GDP.
- The government increased fertilizer prices by Rs.20 per bag.
- Pak Suzuki has no plans to cut production nor resort to plant shutdown in week days in July-December.
- Domestic gold prices soared to all-time high of Rs84,100 per tola.
- SBP reserves rise by $918 million to $8.01 billion during the week ended on July 12 on the back of first tranche of $991.4m received from the IMF.
- FDI falls to four-year low as inflows from Beijing dried out after completion of the first phase of CPEC. FDI was halved to $1,737 billion from $3.471 same period last year.
- Christine Lagarde announced on Tuesday she had submitted her resignation from IMF effective Sept 12, 2019.
Conclusion
Stabilization of the market is still to be seen as market has acted negatively since the application of IMF program from July 3, 2019. The KSE-100 Index has come down from 3rd July’s 34,897 to 32,459, a loss of 2,438 points as on date, around 7 percent of loss.
On exchange rate stability after depreciating from Rs.141 to Rs.157, soon after staff level agreement we saw excessive volatility in the exchange rate which touched Rs.165 in a single day.
The efforts of economic mangers is continuous giving hope to meet the challenges. It seems out of box solution is required with some extraordinary event to happen.