Monthly market review: Fall into November

December 02, 2021 (MLN): After wrapping the last month on a cheerful note, the capital market in November was dominated by depleting foreign reserves given delay in international monetary fund (IMF) disbursement, foreign selling spree and aggressive hike in the policy rate by the central bank, concluding the month at 45,072 while eroding 1,112 points or 2.41% MoM.

The market commenced the month well in the face of significant rebound in Pak Rupee against the US dollar it settled near Rs170 during early Nov’21. Albeit, delay in the approval of the staff-level agreement between Pakistan and IMF under the Extended Fund Facility (EFF) Program tagged with inflationary pressure crushed the bullish momentum. The benchmark KSE-100 index had its more nervous when the State Bank of Pakistan (SBP) raised the policy rate by 150bps to 8.75%, higher than the market consensus of 100bps.

While intense foreign selling was witnessed across the bourse due to passive emerging market (EM) outflows accelerated in the last two weeks of the month, ahead of Pakistan’s formal downgrade to FM status that further upset markets already battered by the uncertainty due to the delay in IMF sixth review.

“More than $150m net selling by foreigners at PSX in Nov alone that is close to $450m selling in 11months of 2021. This selling is a major factor affecting PSX. In the last 7 years, net foreign selling has been recorded at US$2.5bn. Foreign ownership is now 1/4 from its peak,” Muhammad Sohail, CEO Topline Securities, said in a tweet.

During Pakistan’s 2017-2021 stint in the MSCI EM Index, foreign institutional investors offloaded about $1.7bn (net). However, more than $140mn of this exited in November 2021, as passive EM funds sold down, distorting the KSE-100’s performance, Raza Jafri, head of equities at Intermarket securities said.

As a result, a key milestone - the staff-level agreement on policies and reforms with the IMF was largely ignored. Although Pakistan still has to fulfill certain prior conditions (SBP Act and tax reforms via a “mini-budget”), the resumption of the IMF program appears almost certain.

In the month of November, cement, technology & communication, pharmaceuticals, oil & gas exploration companies and food & personal care products emerged as the worst-performing sectors as they took away 809 points from the benchmark KSE-100. In particular, the scrips of TRG (-365), LUCK (-163), POL (-123 pts), SEARL (-89 pts) and PSO (-55 pts) turned out to be the most disappointing ones.

During the month, 29 companies traded in green while 70 landed in the red zone. KSE-all-share market cap decreased by nearly $2.40 billion, in November 2021 i.e., 5.17% lower than the previous month. In terms of PKR, the all-share market cap nosedived by Rs232bn i.e., 2.93% lower as compared to the last month.

Flow-wise, as mentioned above, foreigners offloaded $141mn worth of equities during November 2021 with foreign corporates doing the bulk of selling at $152mn. On the local front, companies purchased $49.24mn worth of stocks, followed by insurance companies with $29.56mn.

Outlook

With ease-off in global commodities, IMF-related uncertainty largely behind and event-driven foreign selling is now over, according to market experts, the market is poised for a strong year-end performance after deep underperformance. Meanwhile, the Omicron, a new variant, might not affect this expected optimism, as around 60% adult population of the country is fully vaccinated.  

Copyright Mettis Link News