KSE-100 Review: ‘January effect’ continues

February 1, 2022 (MLN): Pakistan entered 2022 at the verge of resuming the IMF program, which enabled the market to continue the January effect this year again as the benchmark KSE-100 index gained 779 points during January 2022, up by 1.75% MoM to stand at 45,375 level. 

For those uninitiated, the January effect states that stocks seem to go up the most in the first month of a year. Since its inception, the KSE-100 has risen 21 out of 30 times in the first month of the year.

The market return in dollar terms during the month settled around 1.63% MoM, due to stability in USD/PKR parity.

Not just that, Pakistan’s stock market remained one of the best-performing equity markets in the region during January 2022. According to the note by Arif Habib Limited, out of the 10 regional markets, 6 posted negative returns while 4 posted a positive return namely; Sri Lanka (7.1%), Philippines (3.2%), Pakistan (1.75%), and Indonesia (0.1%).

In the first half of the month, bullish momentum was owed to aggressive buying by foreigners in technology scrips alongside swift approval of the finance bills in the national assembly which changed the sentiments of the investors despite the high trade deficit, increase in government debt and liabilities, higher than expected CPI figures, pressure on currency and delay in IMF negotiations.

Investors’ sentiments were further boosted in the second half of the month after the government achieved compliance on various IMF preconditions for the revival of the support programs. SBP also kept the policy rates unchanged at 9.75% despite anticipation of a potential hike amongst the market participants.

The average volumes during the month under review recorded at 369.5mn shares, as opposed to 342.8mn shares in the month of Dec’21, up by 8% MoM. Meanwhile, volumes in 100-index meanwhile shrunk by 4% MoM to 100mn shares.

In terms of index contribution, the top 5 sectors throughout the month were Banks. Power Generation & Distribution, Fertilizer, Oil & gas Exploration, and Chemical. These sectors collectively added 1,155 points to the index. On the flipside Technology, Cement, Tobacco, Pharmaceutical, and Refineries took away 507 points from the KSE100 Index.

Scrip-wise, HUBC, POL, FFC, BAHL, and EFERT were the best-performing stocks during the month as they added 250, 111, 109, 104, and 89 points to the index respectively, whereas TRG, SYS, PAKT, DGKC, and CNERGY took home the unwanted title of worst-performing scrips.

Meanwhile, the KSE All Share market cap increased by Rs71.29 billion or 0.93% over the month, being recorded at Rs7.75trillion as compared to a market cap of Rs7.68tr recorded last month.

Flow wise, foreigners were the net buyers during the month, injecting $17.56mn in the equity market compared to $5.2mn worth of inflows last month. The major buying was observed in Technology ($ 19.92mn), Other Sectors ($3.52mn) and Power ($0.39mn).

On the local side, the majority of the selling was reported by Mutual funds, Organizations, and Brokers amounting to $22.3mn, $14.7mn, and $4mn respectively. However, Banks and Companies stood on the other side with net buying of $20.2mn and $5mn, respectively.

In the month of February, Pakistan’s stock market is likely to continue positive momentum as a re-entry in the IMF program is expected to support the PKR against USD and reduce the uncertainty over the current account deficit.

In addition, corporate earnings growth will remain healthy owing to higher commodity prices, strong exports growth and robust economic activities in the country.

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