Stocks remain upbeat after positive steps taken to keep economy progress under covid-19 fear
Summary
Government is faced with the task of controlling spread of coronavirus in the country while at the same time continue with the positive activity to run the economy of the country. It’s a great balancing act as said by Prime Minister Imran Khan. The government has taken the risk to walk through the two extreme poles of managing the pandemic as well as to start gradually economic development efforts.
There were some specific decisions and action plans initiated by government, which has boosted the moral of investors and businessmen. As such the stock market remained positive throughout the week except on Monday when it shed 1000 points.
First there was the unexpected cut in monetary policy rate to 9 percent in emergency meeting, making it 425 bps cut in 2020 and to meet the demand of business committee for a single-digit policy rate. During the week, KSE-100 Index gained 799 points an increase of 2.49%. The volume declined to average 178 million and the market capitalisation increased by 150 billion to close at Rs.6,205 trillion.
Second the IMF Board finally gave approval for US$1.4 billion Rapid Financing Instrument (RFI) as COVID-19 support for Pakistan.
Thirdly G20 countries agreed to increase the scope of debt relief from 25 least developing countries (excluding Pakistan) to 76 countries (including Pakistan) which would result in postponement of debts payment for one year. The country pays $10-12 billion per annum to multilateral and bilateral lenders.
Finally Ordinance promulgated by President Arif Alvi for Tax Laws (Amendment Ordinance 2020 for Construction Industry).
The week on Monday started with the news on Sunday by World Bank “Pakistan faces sharp economic recession along with a skyrocketing fiscal deficit as fallout from the prevailing global coronavirus pandemic”. The KSE-100 Index declined by 1000.22 to close at 31,032.99.
On Tuesday, the market remained range bound. The good news was the Asian Development Bank (ADB) agreed to lend $800 million to Pakistan help combat challenges posed by coronavirus. The Index gained 189.75 points to close at 31,222.74.
On Wednesday, the stock opened positive on the partial lifting of lock down. The stock closed flat at 31,242.19 with a gain of 19.48 points.
The stock continued to gain 87.27 points as the relaxation of lockdown continued. The Index closed at 31,329.49 on Thursday.
On Friday, the market turned bullish and skyrocketed by 1,502 points or 4.8 percent. It was the highest single day surge in terms of percentage in 11 years since May 16, 2009. The market closed at 32,831.83 with a trading halt of 60 minutes as 30 share index upper circuit of 5 percent touching intraday high by 2,015 points. Previous three halts in March touched lower circuit. The Index closed at 32,831.83.
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Participants/Activity
On average shares of 348 companies were traded. Of these 189 were gainers and 141 were losers and 18 remained unchanged.
Foreigners were net seller of $14.31m during the week; companies were buyer by $4.57m, Banks were seller $0.50m; Mutual fund net buyer $1.15m, individuals net buyers $2.91m, insurance co buyer 6,80m.
Volume leaders during the week were: Hascol Petroleum 67m; Maple Leaf 65m; K-Electric 30m; Unity Foods 29m; Fauji Cement 25m; Pioneer Cement 23m; BOP XD 20m; Pak Elektron16m; Engro Polymer XD and D.G. Khan Cement 8m each; TRG Pak Ltd 7m and Lottee Chemical 5m.
Economic Measures
International Monetary Fund (IMF) acknowledges Pakistan response to pandemic both the federal and provincial government in response, having implemented a range of measures to delay to contain the spread of virus. It includes quarantine of more than 3000 travelers from Iran, closing borders with neighbours, international travel restrictions school closures, social distancing and lockdown in cities and provinces across the county and deployment of Army to help.
On economic measure mentioned earlier, government announced a relief package worth Rs1.2 trillion on March 24. It included an elimination of the import duties on import of emergency health equipment, relief to daily wage workers worth Rs200 billion followed Rs.150 billion of cash transfer to low income families, Rs100 billion accelerated tax refunds to the export industries and Rs100 billion financial support to small and medium enterprises. The economic package also earmarked resources of accelerated procurement of wheat at Rs280 billion. Rs50 billion financial support to utility stores, Rs70 billion support for fuel prices Rs15 billion support for health and food supplies health and Rs110 billion electric bill payment.
On March 17, the SBP announced two refinancing schemes. First TERF worth Rs100 billion in stimulating investment in new manufacturing plants and machinery at 7 percent and the second RFCC worth Rs25 billion to support hospitals.
All these economic measures have the characteristic of flow of funds to poor segment of the society and generation of economic activity which if properly managed will stabilize the economy and open door for future opportunities.
Raees Uddin Khan
ISMAR