Stocks plunge 3.3 percent on economic qualms

KARACHI: Stocks on Monday tumbled 3.3 percent to settle below the 40,000-point level for the first time during more than one year as investors were perturbed over an unexpected interest rate hike, an unwarranted rupee volatility and dark clouds hovering over economy’s direction, dealers said.

Mohammad Sohail, chief executive officer of Topline Securities said the fall was triggered by higher than unexpected interest rate increase, rupee volatility, and Morgan Stanley Capital International (MSCI) rebalancing related selling. US indices provider MSCI downgraded blue-chips United Bank and Lucky Cement, fuelling foreign selling.

“Pakistani market is now amongst one of the worst performing markets in US dollar return terms in Asia in 2018,” Sohail said. “Investors need big confidence building measures to come back to the market that now trades at PE (price-earnings) of 8 times.”

The benchmark KSE 100-share Index of Pakistan Stock Exchange lost 3.3 percent or 1,335.43 points to close at 39,160.60 points level. KSE 30-share Index followed suit with a decline of 3.21 percent or 619.96 points to end at the 18,704.08 points level.

As many as 364 shares were active during the session and of those 39 moved up, 313 retreated, and 12 remained unchanged. The ready market volumes stood at 164.373 billion shares compared with the turnover of 270.791 billion shares in the previous session.

Topline Research said the index closed below the 40,000 level for the first time in 25 sessions since October 25 and lost 1,000 plus points for the first time in 38 sessions since October 8. Sohail added that the market capitalisation dropped to $57 billion from close to $100 billion during the last 18 months.

Companies that booked highest losses were Nestle Pakistan, down Rs384 to close at Rs8,611/share and Pakistan Tobacco, falling Rs118.90 to end at Rs2,259.20/share. The highest gainers were Punjab Oil, up Rs10.49 to end at Rs221.49/share, and Wah-Noble, rising Rs7.25 to finish at Rs321.25/share. Javedan Corporation Limited recorded the highest volumes with a turnover of 15,500 shares. The share gained Re0.01 to close at Rs31/share. The lowest volumes were witnessed in the Bank of Punjab, recording a turnover of 20.494 million shares, and losing Re0.24 to end at Rs13/share. Analysts said panic also followed the reports that Finance Minister Asad Umar had resigned.

Though officials later in the session denied the reports, dents were already made and investors got disturbed over the health of the country’s economic situation, they added.

The market, in just half an hour of trading, recorded a decline of 600 points and it hit the low of 39,014, vanishing more than 1,400 points. Small recovery was witnessed before the close with the index giving up 1,335 points.

“Please be aware! Uncertainties are even worse than the material bad news,” Adil Ghaffar, chief Executive officer of First Equity Modarba advised. Analyst Radha Kirshan Khatri at brokerage We Financial Services said stocks sharply fell on the back of deteriorating macroeconomic situation.

The central bank raised interest rate by 150 basis points to 10 percent as opposed to the market consensus of 100 basis points couple with downward real GDP growth projection to four percent for FY2019 and widening of rupee-dollar parity also triggered panic.

“Moreover, the investors have concern over how the government would tackle with deteriorating economic situation as it seems there is no clear policy to cater to this issue,” Khatri added.

Hamad Aslam, director Research at Elixir Securities said key concerns dampening the investor sentiments were earlier and faster than expected monetary tightening and unabated foreign selling.

“Rupee’s depreciation was largely expected. There were some investors who took comfort in the finance minister’s earlier comments that balance of payment crisis has been averted,” Aslam added.

“Such investors were taken by surprise as they aligned themselves to the writing on the wall that Pakistan has no choice but to enter an IMF (International Monetary Fund) program, which will come with conditions that will severely slow down the economy – a painful and much needed path.”

Ghaffar of First Equity Modarba, however, argued that the gravity of the country’s financial situation is not that bad that it would be denied resources to bridge the gap.

“Financial team should also take cognizant in the matter of unwarranted volatility in both conduits – devaluation and interest rates – and their negative impact on stock market,” he added.