Stocks appear tempting as COVID-19 engenders discounted prices

Stocks market is likely to remain under pressure until coronavirus impact comes to an end, but investors are waiting in the wings to swoop enticing valuations amid counteractive stimuli by the governments to offset the outbreak, dealers said.

“Although the current levels at the index appear enticing, we believe a sustainable rally in the medium-term will be subject to release of an expiry date for the corona pandemic,” brokerage Arif Habib Limited said. “Until then the market may continue to depict a jittery trend.”

Pakistan Stock Exchange’s benchmark KSE-100 index declined eight percent or 2,557 points to close at 28,110 points. Average daily volumes for the outgoing week settled down 8 percent to 239 million shares, while average daily value clocked in at $55 million, up 41 percent week-on-week.

Analysts said pandemic, which has been spiraling around the globe crashing the economies, did not spare the domestic capital market, which hit the six-year low level during the outgoing week. However, it showed some recovery owing to Prime Minister Imran Khan offering relief package worth Rs1.2 trillion and interest rate cuts.

“The pandemic of coronavirus and its economic damage remains to be an incessant risk factor for the economy and consequently corporate earnings,” brokerage Habib Metro-Financial Services said. “Hence, the index continued to experience a bearish momentum, despite significant steps taken by the government to sustain the economy.”

The State Bank of Pakistan slashed the benchmark rate by 225 basis points to 11 percent. The central bank relaxed regulations to support the banking system and reduce the financial burden of the businesses to shield them from ongoing lockdown amid coronavirus outbreak. Moreover, the government unveiled Rs1.2 trillion worth of relief package to underpin the economy.

Foreign selling continued this week clocking in at $13.7 million compared to net selling of $19.6 million last week. Selling was witnessed in banks ($5.3 million) and exploration and production ($3.5 million). On the domestic front, major buying was reported by individuals ($6.2 million) and insurance companies ($5 million).

“Going forward, increasing number of coronavirus cases across the world in general and in Pakistan in particular is likely to keep markets under pressure,” BMA Capital Management said. “However, combination of different stimulus packages and attractive market valuations may keep investors interest alive.”

An analyst said attractive price multiples and discounted prices warrant a buy stance but in cautious steps as further weakness in the index cannot be ruled out.

During the week, trading has shortened to four days as the country observed the Lahore resolution day on Monday.

The index closed in red in 2 out of 4 sessions. Stocks dived sharply to 27,229 points in the first two days, lowest level since March 2014, as investors continued to gauge the broader economic fallout of coronavirus. Underperformance of the benchmark index has already incorporated potential macroeconomic weaknesses, while it has yet to appreciate the positives.

On the international oil front, Brent crude prices started the week at $29/barrel and remained volatile throughout the week amid looming uncertainty due to coronavirus outbreak, while the US urged Saudi Arab to end the price war. Brent crude is now hovering at around $26.05/barrel.

Sector-wise negative contributions came from banks (878 points), oil and gas exploration companies (344 points) and fertilisers (316 points). Scrip-wise negative contributions were led by HBL (314 points), Engro (182 points), and Oil and Gas Development Company (146 points). Positive contributions were led by POL and ATLH with 5 points each.

The government announced a substantial support package to keep the economy afloat. Among numerous other things, the package includes a significant cut in oil prices (Rs15 per litre) to be applicable for the next three months and an immediate Rs100 billion tax refund to exporters with a deferred payment facility on loans.