PSX faces tough week ahead

KARACHI: After closing in the red following a six-week rally, the Pakistan Stock Exchange (PSX) faces Monetary Policy Committee (MPC) meeting as well as the International Monetary Fund (IMF) executive board review meeting in the rollover week starting today (Monday).

From a technical point of view, the correction in the market was imminent, which has been going on for the last one-and-a-half-week. However, a lot of ifs and buts are there for investors during this week, which may keep them cautious.

The Monetary Policy Committee (MPC) of the State Bank of Pakistan is meeting on Monday whereas inflationary pressure is set to rise in the backdrop of augmenting commodity prices. Though the market is mentally prepared for up to 50 basis point increase in interest rate, any further hike can hit the investors’ confidence hard.

Moreover, talks with the International Monetary Fund (IMF) are expected to resume on January 28 which could have a positive impact on the market. The government has so far met all key conditions of the IMF except for the passage of the State Bank of Pakistan (Amendment) Bill, 2021 from the parliament. Though the National Assembly has passed this bill, it still needs clearance from the Senate. It is yet to see if the government will manage to get the bill passed from the Senate or not. If the IMF board meeting clears the review, it will bode well not only for national economy but also for the bourse and vice versa.

The PSX closed last week with a loss of 745 points (-1.63 percent) to settle at 45,018.28 points. The week kicked off on a bearish note as jittery investors opted to stay on the sidelines due to concerns over increasing Covid-19 cases in the country. The downtrend continued for the next three sessions as a lack of positive triggers coupled with the depreciation of the rupee against the US dollar amid increasing crude oil prices and commodity prices added to the woes of investors who opted to stay on the sidelines.

However, the tables turned on the last day of the trading week as the bulls returned to the bourse following an upward revision in Pakistan’s economic growth rate for the previous fiscal year due to rebasing. The government rebased the economy from the fiscal year 2005-06 to 2015-16, which expanded the size of the economy, propped up the growth rate and reduced the public debt.

The major developments last week that kept the market under pressure were surging crude oil prices, increasing number of the Omicron cases, announcement of a 17 percent sales tax on commodities, withdrawal of sales tax zero-rating, and a decrease of $562 million in foreign exchange reserves.

During the week under review, average volumes clocked in at 201 million shares (down by 43% week-on-week), while average value traded settled at $42 million (down by 17% week-on-week). Meanwhile, foreign selling was witnessed this week, clocking in at $2.09 million against a net buy of $0.53 million recorded last week.

Selling was witnessed in oil marketing companies ($1.4 million), and technology and communication ($1 million). On the domestic front, major buying was reported by individuals ($12.4 million), followed by banks ($5.9 million). The KSE-100 is currently trading at a PER of 5.1x (2022) compared to the Asia-Pacific regional average of 13.9x while offering a dividend yield of 8.7% versus 2.3% offered by the region.

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