Equity
The KSE-100 index gained around 276 points in the departed week and closed 37,607-mark i.e. nearly 0.74% percent higher than the closing of the previous week.
According to Arif Habib Limited, ‘the outgoing session marked end of a fifth consecutive positive week at the KSE-100 index. Although the rally lost stream mid-week amid profit taking and selling pressure from individuals, the bourse moved up 276pts WoW to close at 37,608 points. To recall, sentiments have been rejoiced by several rate cuts by the SBP (625bps in total) which have once again brought equities to the forefront as the preferred asset class, while improvement in the domestic COVID-19 recovery rate, end of lockdown as well as reinstatement of pre-corona market hours aided volumes and attracted investment in the market’.
Commercial Banks emerged as the best performing sector during the week, as it provided about 253 points to the benchmark index, followed by meager gains of 76, 31, 30 and 17 points contributed by Power Generation, Automobile, Textile and Technology & Communication, respectively.
Company-wise, the scrips of HBL, MCB, HUBC, BAHL and MTL were the most desirable ones as they contributed 128, 63, 58, 35 and 31 points, respectively.
Figures released by NCCPL showed that foreign investors dumped USD 9.27 million worth of stocks during the week with foreign corporates doing the bulk of the selling.
On the contrary, local and Insurance Companies picked up USD 7.34 million and USD 7 million worth of stocks, respectively, followed by USD 6.8 million worth of stocks purchased by Individual investors.
Forex
The Dollar had PKR on the ropes early in the week as pressure from SCRA outflows and other payments continued, however, as the week progressed PKR showed some signs of recovery, gaining Rs.1.03 or 0.62% from its lowest intra-week point.
10 day volatility increased from 2.35% to 3.68% as the dollar traded in a range of 168.55 (bid high) and 167.25 (ask Lows) before ending at 167.2606, which is only the second time since May 15, 2020 that the Pak Rupee has ended a week with gains, albeit of just 7 paisa.
This was the second week in succession where SBP FX reserves data showed no significant increase (roughly USD 80 million over two weeks), however it was announced that Pakistan had signed loan agreements worth USD 750 million with ADB and World Bank which would help in shoring up SBP reserves.
Money Market
The central bank intervened twice in the money market, injecting Rs.125 billion on Thursday for 1 day and Rs. 1,031.55 billion for 10 days on Friday, a slight reduction compared to Rs.1,043 billion injected during the previous week.
Yields in the money market witnessed an upward alignment across the board, with 3m increasing by 14 basis points while 6 and 12 month increased by a smaller margin of 5 and 4 bps.
Despite cut off yields in the PIB auction declining by 60, 7 bps for 3 and 5 years and 15 and 11 bps for 15 and 20 years with 10 years cut off remaining unchanged, yields in the secondary market went up by 20, 28 and 21 bps for 3, 5 and 10 years, indicating the market either expected further reduction in interest rates or was just speculating prior to the auction.
Late on Friday, the SBP announced it will maintain the Policy rate at the current level by declining to hold a meeting in July, citing several emergent meeting and actions taken on the monetary policy recently. This also saves the SBP the trouble of giving a long winded explanation of it assessment of the economy and inflation while leaving the door open for emergency action if and when necessary.
With the SBP reducing the policy rate by 625 basis points since March and 525 bps in FY21, the central bank might be reluctant to cut rate more, according to research published recently by Arif Habib Limited “One of the key points mentioned in the MPS was that SBP stated that forward-looking real interest rates would be kept close to zero. We believe that declining inflationary expectations points towards the fact that we may now see interest rates to have bottomed out.”
According to the report “The policy rate should hold at current levels in the short-to-medium term. With external account vulnerabilities controlled, currency stability facing no major risk and inflationary expectations under moderation, we believe that the interest rates may persist at current levels at least until the end of FY21”.
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