Stocks to carry on tracking IMF negotiations

Stocks declined due to ambiguity over the International Monetary Fund programme and political uncertainty during the outgoing week, with market expected to stay around the Fund’s negotiations next week, traders said.

“An assurance from ‘friendly countries’ to fund a balance of payments gap is the last hurdle in securing the IMF deal,” said brokerage Arif Habib Ltd. “Therefore, the materialisation of said commitment from these countries will help put the IMF programme back on track and aid the sentiment at the index.”

In the outgoing week, the stock market hovered in the red, mainly because of uncertainty over the resumption of the IMF programme. The government announced a subsidy scheme without consulting the IMF, which could potentially cause further delays in unlocking the next tranche, said the report. As a result, rupee depreciated against the dollar by Rs1.41 | 0.53 percent WoW, closing the week at 283.2/USD.

Additionally, the sensitive price index (SPI), saw a record increase to 46.65 percent, due to a consistent rise in the prices of essential commodities.

On the political front, the Election Commission of Pakistan postponed the Punjab elections, originally scheduled for April 30, till October 8.

In addition, the government on Wednesday raised Rs1.14 trillion through MTBs, whereby yields for 3M and 6M increased by over 100bps, potentially signalling another rate hike in the next MPC.

Albeit, Pakistan recorded a current account deficit of $3.86 billion during July-February FY23 compared to $12.07 billion in the same period last year, depicting a decline of 68 percent.

The market closed at 39,942 points, shedding 1,388 points (down 3.36 percent) WoW. Average volumes arrived at 133 million shares (down 40 percent WoW) while the average value traded settled at $12.7 million (down 56 percent WoW).

Foreign buying clocked in at $0.5 million compared to a net sell of $5.0 million last week. Major buying was witnessed in E&P’s ($0.5 million) and technology and communication ($0.3 million). On the local front, selling was reported by insurance companies ($0.7 million) followed by individuals ($0.6 million).

Sector-wise negative contributions came from miscellaneous (210 points), cement (191 points), E&Ps (186 points), fertiliser (180 points), and banks (173 points). Scrip-wise negative contributors were PSEL (211 points), OGDC (87 points), PPL (79 points), EFERT (68 points) and ENGRO (61 points).

The sectors which contributed positively were leather and tanneries (5 points) and modarabas (2 points). Scrip-wise positive contributions came from SRVI (5 points), RMPL (4 points), and MTL (3 points).

KASB Pakistan Research said the market dropped because of a delay in the IMF programme as the fund sought assurance from friendly countries that promised financing support.

The market started on a positive note as the SBP received $500 million from ICBC as a part of a $1.3 billion rollover facility to support the country’s depleting foreign exchange reserves. Additionally, China also granted a rollover of a $2.0 billion SAFE deposit, which was in line with the IMF’s conditions. “This would reduce the pressure on FX reserve,” it reported.

“We expect the CPI reading to remain elevated on March 23 amidst a hike in GST, PKR depreciation and an increase in food prices. This further strengthens our case for a hike in the policy rate,” it said. “During these testing times, we recommend fertiliser and E&P sectors, with EFERT and MARI being our top picks.”