KSE-100 Monthly Review: A hopeful month with a hopeless outcome

November 2, 2020 (MLN): The stock markets in Pakistan staged yet another melodramatic performance during the departed month, forcing everyone to remain glued to their seats as the KSE-100 index took extreme zig-zag turns session after session, before ultimately settling at where it started from.

In other words, the benchmark index lost nearly 683 points during the month of October as it was unable to sustain the bullish momentum and closed at the 39,888-mark, down by 1.68% as compared to the previous month’s closing.

The increase in the cases of COVID-19 in Pakistan kept the benchmark index at bay throughout the month, restricting it from gaining momentum even when there were positive market drivers. The rise in the cases emerged after the government allowed shops, restaurants, marriage halls, schools, and universities to reopen.

With the second wave of COVID-19 affecting most of the world, the demand for tourism and international travel once again took a significant hit, causing a decline in the oil demand. This led to an increase in oil inventories in various parts of the world, causing a massive decline in its prices. Quoting a report by the World Bank, Spectrum Securities has stated that oil prices are expected to average at $44 per barrel in 2021, up from an estimated $41 per barrel in 2020.

Another important event that gave a hard time to the local markets was the FATF meeting. Even though the government tried to paint a very positive picture out of the meeting by suggesting that FATF took note of the significant progress made by the country on a number of action plan items, and recognized its irreversible efforts on implementation of FATF Action Plan, the overall impact of the outcome of the meeting on the KSE-100 was still disastrous.

The benchmark index also took inspiration from international markets which continued to fall on account of rising COVID cases, as well as US elections that are just around the corner. During the last sessions of the month, the index took a major hit after a meltdown in New York and Europe sparked by France reimposing a nationwide lockdown to battle a new wave of virus infections, with fears other major economies could follow suit.

With sentiment already dampened by US lawmakers' failure to pass a new stimulus and election uncertainty, the news out of Paris was the last thing investors wanted to hear as the recovery from this year's global financial rout was already stuttering.

Further hurdles were faced in the form of political noise that was created after the arrest of a prominent leader from the opposition, as it resulted in several protests across the country.

Besides this, it can be said with certainty that the month had great potential to take the KSE-100 to newer heights, as most of the companies that announced their results for the period ended June 30, 2020, delivered exceptional performances.

Moreover, the country once again witnessed growth in remittances, which rose to $2.3 billion in September 2020 i.e. 31% higher as compared to September 2019 and 9% higher as compared to August 2020.

Even though it did not directly help the sector, the results of the volumetric sale of Automobiles in Pakistan for the month of September helped in raising the confidence and sentiments of the investors to a great extent. The sector took another step towards a long impending victory during the month as the latest numbers published by the Pakistan Automotive Manufacturers’ Association (PAMA) showed recovery in almost all the segments.

Most of the recovery was led by Passenger cars, jeeps, trucks, buses, and motorcycles. Besides increasing demand, the surge in sales was due to the resumption of production and industrial activities, lower interest rates, higher remittances, and an increase in the incomes of farmers.

The appreciation of the Pakistani Rupee on the back of higher remittances and Current Account Surplus also helped raise the confidence of investors. It is pertinent to note that Pak Rupee's Real Effective Exchange Rate Index (REER) increased by 2.54 percent in September 2020 to a provisional value of 94.12 from the revised value of 91.79 in August 2020.

E&Ps, Oil & Gas Marketing Companies, Pharmaceuticals, Commercial Banks, and Textile Composite emerged as the worst-performing sectors during the month, as they took away around 525, 159, 98, 98, and 63 points respectively from the benchmark index. To be specific, the scrips of POL (-214), PPL (-124), OGDC (-112), MARI (-76), and HASCOL (-72) turned out to be the most disappointing ones.

During the month, 34 companies traded in green while 65 landed in the red zone. The All-Share Market Cap increased by nearly USD 47.7 billion, i.e. 0.1% higher than the previous month. However, in terms of PKR, the All-Share Market Cap declined by Rs. 243.4 billion i.e. 3.19% lower as compared to the last month.

Figures released by NCCPL showed that foreign investors sold USD 39.1 million worth of stocks during the month with foreign corporates doing the bulk of selling @ USD 41.96 million. On the local front, Insurance Companies purchased USD 26.5 million worth of stocks, followed by USD 15.6 million and USD 10.4 million worth of stocks bought by Banks/DFIs and Companies respectively. Other significant transactions included USD 15.5 million and USD 6.2 million worth of stocks sold by Individuals and Mutual Funds respectively.

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