October 1, 2020 (MLN): The month of September did not turn out to be as fruitful as the two months prior to it, ultimately breaking the winning streak that the KSE-100 has been on since the start of the new fiscal year. In short, the benchmark index lost nearly 539 points during the said month and closed at the 40,571-mark, down by 1.3% as compared to the previous month’s closing.
Studying the month-long pattern shows that most of the panic behavior was insinuated by both political instability and economic uncertainty. Despite the presence of several positive factors, the details of which will be discussed shortly, the market spectators and investors chose to inculcate the negative aspects of the economy into their investment decision.
Starting off with the good part, Pakistan, for the second consecutive time, witnessed a Current Account Surplus of USD 297 million for the month of August, which brought the total surplus for the first two months of the Fiscal Year 2021 to USD 805 million, as opposed to the deficit of USD 1.214 billion recorded in the same period of last year. Unfortunately, this piece of information failed to sustain the positive reaction that followed for too long.
Prime Minister Imran Khan announced a historic Rs. 1,100 billion package under the Karachi Transformation Plan to resolve the lingering and chronic issues of the port city, including the provision of clean drinking water, cleaning of drains, and sewage and solid waste disposal within three years.
The month also saw positive economic changes after a very long time, such as the Large Scale Manufacturing (LSMI) which grew by 5.02% in July 2020 after six successive months of negative growth. Owing to the mere economic recovery seen in the past few months, especially in the Auto, Petroleum, and Cement sectors, the State Bank of Pakistan kept the Policy rate unchanged at 7%.
The overall remittances increased by 24.4% during the month of August, as compared to the same month of last year. Moreover, inflationary pressures continued to remain under check as the CPI during the month of August fell from 9.3% to 8.2%.
Unfortunately, the above pieces of information failed to sustain the positive reaction that followed for too long. During the month, Fitch Ratings released a report wherein it anticipated deterioration in remittance inflows to widen current account deficits, contributing to higher external financing needs. For countries with fragile external finances, such as Pakistan and Sri Lanka, the shock to remittances could exacerbate existing challenges.
The arrest of PML-N leader, Shahbaz Sharif, by NAB on account of money laundering, created most of the ruckus on the trading floors. The day this development took place, the KSE-100 index crashed by almost 900 points. However, there have been reports claiming that this event had little role to play in the market’s performance that day, as it was down by almost 400 points even before the arrest took place.
Most importantly, the resurgence of COVID-19 cases in Pakistan, especially after the reopening of schools, has put investors in a dubious state. The impact of this has been reflecting on the stock markets for quite some time and will continue to do so lest no corrective measures are taken on time.
The oil and Gas Exploration sector has been credited for leading the index into the red district, as it snatched as much as 367.5 points. In this case, we can still give the benefit of the doubt to the state as it had little role to play in the performance of the sector. The destruction was mostly caused by international oil prices, which fell by 6.77% MoM.
The power Generation and Distribution sector also contributed to the jeer-worthy performance of the stock markets, as it took away 169.7 points from the KSE-100. The investors were skeptical of the scrips of this sector as there have been multiple reports doing the rounds regarding the possibility of renegotiation of MoU between the Independent Power Producers and the Government.
Lastly, Commercial Banks stripped the index off by almost 159 points owing to the dented earnings of most of the major players, on the back of lower interest rates. The news of deferment of loans by the State Bank of Pakistan due to the outbreak of COVID-19 worsened the investors’ confidence in this sector. To be specific, the scrips of OGDC (-163), HUBCO (-155), and PPL (-142) turned out to be the most disappointing ones.
During the month, foreign investors observed net selling of $33.3 million, with foreign corporates doing the maximum selling. On the local front, significant net purchasing of $31.912 million was observed amongst individuals investors, followed by insurance companies that bought securities worth $23.33 million. On the other hand, Banks/DFIs sold securities worth $11.63 million.
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