September 1, 2021 (MLN): If we look at the recent headlines, it signals that Pakistan’s stock market is in the doldrums for unknown reasons. Despite better financial results for the year FY21 along with the reviving economic stability and strong foreign flows, the market remained ruthless.
During the month of August’21, the performance of the benchmark KSE100 index remained muted as it kept oscillating within the narrow range of 1,472 points and closed at 47,419 level with a small 0.77% return. In USD terms, the market showed a negative return of 1.6%.
The major ins and outs to defend this cold-blooded behavior of the market were intensifying geopolitical uncertainty surrounding Afghanistan and its possible spillover impact on Pakistan, Current Account Balance reversal, and global commodity price hike which could build pressure on the country’s balance of payment and inflation as well.
Besides, concern over growing covid-19 positivity ratio, uncertainty over talks with IMF and a rapid currency depreciation (4% MoM) also derailed investor confidence during the month.
Subsequently, the average daily volume of the KSE-100 index dropped by 13.6% MoM to 127mn shares as compared to 147mn shares in the previous month while value decreased by 16% MoM to R6.6bn. Market participation also eased off as ADT came off by 11% MoM to 523mn shares whereas ADTV picked up slightly to PkR47.4bn, reflecting a shift from sideboard to the mainboard.
However, it is worthwhile to note that compared to the previous two months’ performances, the benchmark KSE100 index posted a rebound after two months of negative returns.
The rebound can be attributed to many positive developments on the economic front such as an influx of $2.75bn from the IMF under the global SDR allocation, consumer price Index in July’21 came at 8.4%, which is around market consensus, the Federal Board of Revenue (FBR) surpassed its July’21 revenue collection target by Rs71 billion, improvement in current account deficit by 52% MoM in July, strong foreign flows in Roshan Digital Account and Remittances, eased of some lockdown restrictions by Sindh government, and increase in Pakistan Business Confidence Index by 59 points.
From a sector-specific lens, major contributions during the month came from, major contribution came from Banks with 234pts, followed by Technology, Power, Chemicals with 219, 71 and 54 points. In particular, the scrips of MEBL, SYS, EPCL, HUBC, and TRG, with 247, 165, 84, 76 and 62 points respectively, turned out to be the most pleasing ones.
On the other hand, Cement, Inv. Banks/Inv. Cos. /Securities Companies, Oil & Gas Marketing Companies. Leather &Tanneries, and textile Composite emerged as the worst-performing sectors, as they took away around 274 points during the month from the benchmark index. To be specific, the scrips of LUCK (-153pts), BAHL (-32pts), DAWH (-30pts), SRVI (-28pts), and HBL (-25pts) turned out to be the most disappointing ones.
Moreover, during the month, the All-Share Market Cap increased by nearly $919.7million, i.e., 1.81% lower than the previous month. In terms of PKR, the All-Share Market Cap surged by Rs47.7 billion i.e., only 0.58% higher as compared to the last month.
Figures released by NCCPL show that Aug’21 was another month of foreign selling as foreign investors sold a net $9.9mn worth of stocks during the month, with foreign corporates doing the bulk of selling worth $15.69mn.
On the local front, foreign selling was largely absorbed by Local Companies that purchased $12.7mn worth of stocks, followed by $7.8mn and $2.25mn worth of stocks bought by Other Organizations and Brokers, respectively. Other significant transactions included $14.4mn and $1.54mn worth of stocks sold by Insurance Companies and Banks/Dfi respectively.
The market is expected to show positive momentum in Sept’21 as a number of key developments are expected this month which are likely to impact the trajectory of the bourse. The sixth review of the IMF is due this month from which any positive development could attract positive sentiment in the market, a report by Arif Habib Limited said.
Negotiations have been ongoing, with the IMF being apprised of the government’s plans for circular debt reduction and tax revenue collection. The MSCI decision is also expected this month on Pakistan’s status as an EM which will also dictate the market sentiments going forward.
Meanwhile, the anxieties related to PKR depreciation, which had crossed the 167/USD barrier today, and building expectation of an imminent discount rate hike will likely keep the investor sentiments in check.
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