PSX remains volatile amid mixed indicators

KARACHI:

The Pakistan Stock Exchange (PSX) witnessed volatility in the last week as it fluctuated between red and green zones and closed with a meager gain of nearly 200 points.

Market movement was heavily influenced by mixed investor sentiment on rising political uncertainty, policy rate cuts, rating decisions by global agencies and improved economic data.

In a major development, the State Bank of Pakistan (SBP) convened its monetary policy meeting on Monday where it announced a 100 basis point (bps) cut in the policy rate.

In addition, the Pakistani rupee remained flat, while the central bank’s foreign reserves increased by $75 million to $9.102 billion.

Daily market action showed that the KSE-100 began the week on a hopeful note as it rose nearly 800 points, after Pakistan’s long-term foreign currency issuer rating was upgraded to ‘CCC+’, which was expected to stabilize the rupee and boost foreign exchange inflows.

However, the following day, stocks came under downward pressure after a modest 100 basis point cut in the policy rate to 19.5%, aimed at further reducing the rate of inflation.

The PSX fell nearly 750 points on Wednesday in a sharp bearish activity fueled by investor concerns over the confirmation of S&P Global’s ‘CCC+’ rating, which underscored the country’s heavy reliance on foreign aid to meet its obligations. debt amid political instability.

The next day, the market remained under pressure as investors resorted to profit-booking mainly due to bank margin tightening and uncertainty over the rollover of $15 billion worth of Chinese energy debt.

Bulls rebounded on Friday as the KSE-100 rose around 500 points, boosted by improved economic data and optimism of a further SBP policy rate cut.

The benchmark KSE-100 rose 196 points, or 0.3% week-on-week, to close at 78,226.

JS Global analyst Shagufta Irshad, in her report, wrote that the KSE-100 remained volatile throughout the week due to selling pressure amid political uncertainty. Average daily trading volume was up 6% WoW, he said.

During the week, Fitch raised Pakistan’s long-term foreign currency issuer rating (IDR) to ‘CCC+’ from ‘CCC’, while S&P Global maintained the rating at ‘CCC+’ for the long-term and ‘C’ for the short-term.

At the macro level, data from the Pakistan Bureau of Statistics (PBS) revealed that the Consumer Price Index (CPI) for July 2024 was 11.1%, marking a 33-month low. In addition, the trade deficit narrowed to $1.9 billion, the lowest in five months.

For the first fortnight of August, the government cut petrol and diesel prices by Rs 6.2 per liter and Rs 10.9 per litre, respectively, due to lower ex-refinery prices. Also, SBP’s foreign exchange reserves remained stable at $9.1 billion, he said.

On the PSX, strong second-quarter earnings and dividend announcements boosted activity in shares of UBL and Fauji Fertilizer Company.

“The market is anticipating the approval of a $7 billion IMF facility, which is expected this month, and any progress on Chinese debt restructuring could support Pakistan’s debt payments,” the JS analyst added.

Arif Habib Limited (AHL), in its report, noted that the week started on a positive note with the monetary policy committee meeting where the central bank cut its policy rate by 100 bps to 19.5%.

However, Pakistan’s trade deficit in July widened 19.7 percent year-on-year to $1.95 billion. Meanwhile, SBP raised Rs 141 billion through bond auction, where three- and five-year yields fell by 36 and 15 basis points respectively. In the interbank market, the rupee remained flat at Rs 278.5 to the dollar.

At the sector level, the notable positive contributors were fertilizers (417 units), refineries (68 units), electric power (63 units), exploration and production (58 units) and pharmaceuticals (36 units).

In contrast, the main negative contributors were cement (207 points), banks (135 points), technology (66 points), oil trading companies (26 points) and textiles (21 points).

Foreign investors sold $2.2 million worth of shares during the week under review compared to a net purchase of $4.6 million the previous week, AHL added.