Stocks to take cue from post-budget announcements

Stocks meandered without a direction through most of the week, despite some strong financial results announcements, as uncertainties over federal budget took a serious toll on market participation, dealers said. Analysts at Habib Metro Financial Services said the market reaction would largely depend on the post-budget vibes.

“Much-hyped incentives for the equity market alongside a major tax relief for the salaried class, reduction in super tax for banks, extension/increase in subsidy for fertilisers, and partial resolution of circular debt will prove to be the key triggers for the equity market to move up,” the brokerage said in a report. The results season was in full swing but most of the companies across cements, banking, pharmaceuticals and automobile sectors reported unexciting earnings.

Fertiliser, exploration and production, and power companies mostly announced improved results but failed to stir any measurable optimism as investors preferred to take profits over taking new positions.

Investors anxiously waited for a positive development ahead of the federal budget announcement on the rollover day. The beneficiaries of gas infrastructure development cess (GIDC) removal/reduction again came under spotlight. Fauji Fertilizer Company gained 4 percent on the last day of the week, followed by Fauji Fertilizer Bin Qasim 4 percent, and Lotte Chemicals, which strengthened 2 percent. Resultantly, market managed to close positive, gaining 255 points or 0.6 percent during the whole week, closing at 45,543 points level.

Topline Securities in a report said oil marketing sector stocks cumulatively contributed 123 points to the index, where Hascol Petroleum Limited gained 20 percent in the outgoing week amid comparatively better financial results, while Pakistan State Oil and Shell Pakistan gained 6 percent and 3 percent, respectively. “Moreover, commercial banks and fertilisers contributed 86 and 70 points respectively,” the brokerage added. The market participation in terms of volume and value rose by 9 percent and 8 percent respectively.

The rumor mill held the mid-cap banking names Faysal Bank and Bank Alfalah particularly in the limelight amid increasing chatter of these entities likely to be cherry-picked by potential buyers in the near term. Budget related excitement also kept banking names relevant on expectations of a possible cut in super tax.

During the week, Lucky Cement unveiled plans for a brownfield expansion at its Pezu plant in the North to the tune of 2.6 million tons and also an addition of 1.2 million tons in clinker capacity in its Iraq operations. However, the cement giant’s lower than expected result, attributed to dwindling gross margins, soured the sentiments at the apex bourse.

The rupee also continued its slide against the greenback, especially in the open market, touching Rs119.70 as hot money flows are being routed into currencies to hedge against an imminent depreciation in the value of national currency down the line.

An analyst at BMA Capital Management said with the result season approaching its end, next week’s trading activity would primarily be driven by positive budget announcements.

“Available details on budget 2018-19 suggest it is broadly positive for the market, given the tax relief and other positive measures for investment returns. A populist approach is quite visible chiefly to the benefit of agriculture, industries and individuals (salaried class),” the analyst said. Moreover, the analyst said, amnesty scheme has been expectedly made part of the budget.

“Another key data point to track next week is consumer price index (CPI) numbers for April 2018, where we expect CPI to drop to 2.8 percent,” the analyst said.