PSX remains range bound pending EFF approval

KARACHI:

The Pakistan Stock Exchange (PSX) remained subdued in the coming week as investors awaited approval from the International Monetary Fund’s (IMF) board for the $7 billion Extended Fund Facility (EFF) and on concerns over possible foreign capital outflows due to coming rebalancing of the FTSE.

However, the KSE-100 index registered a meager gain of around 400 points based on the Consumer Price Index (CPI) inflation reading, which fell to single digits for the first time in three years to 9.6% for August 2024 .Easing inflation fueled hopes of a rate cut at the next monetary policy committee (MPC) meeting.

Among other highlights were a 20% drop in international crude oil prices since the start of 2024, the borrowing of Rs 835 billion in a bill auction and a narrowing of August’s trade deficit to $1.68 billion, the lowest of last 11 months. Daily trading saw the PSX fall more than 200 points on Monday due to profit-taking in select stocks amid economic uncertainty and concerns about stock market oversight.

The next day, the market registered a small gain of 73 points, reversing the previous day’s downtrend, amid encouraging 9.6% CPI inflation for August. The stock market continued its upward momentum on Wednesday, rising nearly 500 points, boosted by optimism of a rate cut in the upcoming State Bank of Pakistan (SBP) monetary policy announcement.

The KSE-100 saw a range-bound move and closed flat the next day as weak economic numbers and a delay in the approval of the IMF’s loan program weighed on investor interest. Stocks posted small gains on Friday as investors took profits after an earlier rally in the index. The lack of positive news made market players cautious, resulting in limited activity in major stocks.

The benchmark KSE-100 ended the week at 78,898 points, gaining 410 points or 0.5% on a weekly basis (WoW).

JS Global analyst Wadee Zaman, in his review, wrote that the KSE-100 remained largely zone-bound during the outgoing week, gaining 0.5%. Average daily trading volume increased by 12% WoW. He said investors were waiting for IMF board approval for EFF for Pakistan, while the upcoming rebalancing of the FTSE index may trigger foreign outflows in the near future.

The week began with CPI falling to 9.6% in August, marking the first single-digit inflation rate in three years. One notable development was the significant drop in international oil prices, which have fallen 20% since their peak in early 2024, Zaman reported. In addition, the government raised Rs835 billion from the sale of bills, surpassing the auction target without reducing cut-off yields.

Pakistan’s trade deficit in August narrowed to $1.68 billion, the lowest in 11 months, while cement shipments fell 18% year-on-year (y-o-y) in July and August 2024 due to higher prices.

Also, sales of petroleum, oils and lubricants (POL) fell 14% year-on-year in August. Among corporate news, Kohat Cement, along with its annual results, announced a buyback of up to 12 million shares, representing 20% ​​of the free float, which sent the stock touching its upper circuit for two consecutive days, the JS analyst added. Arif Habib Limited (AHL), in its report, noted that the stock market started trading on a negative note where investors resorted to profit taking.

“Momentum shifted towards the green zone following the announcement of single-digit inflation at 9.6% (34-month low), renewing expectations for a policy rate cut at the upcoming MPC meeting,” it said. On the IMF front, the government was optimistic that all the lender’s conditions and requirements would be met on time and that Pakistan’s case would be approved by its board.

Additionally, SBP’s foreign exchange reserves increased by $33 million WoW to $9.4 billion.

Foreign investors sold shares worth $6.7 million during the week under review compared to a net purchase of $3.7 million last week.