Attractive stock valuation expected to lure bargain hunters

Stocks are expected to recover some losses on attractive valuations after declining 3.5 percent last week on unattractive budgetary measures, dealers said.

Brokerage Arif Habib Limited said the market is currently trading at attractive levels warranting attention to fundamentally sound shares.

“The political noise is expected to settle down as the government is making efforts to mend ties with the coalition partners,” the brokerage said in a report.

“Moreover, rise in international oil prices is expected to fuel interest in exploration and production sector.”

Pakistan Stock Exchange’s benchmark KSE-100 index fell 3.5 percent, or 1,172 points, to settle at 33,488 points during the week. Average volume settled at 229 million shares, up by one percent week-on-week, while average value clocked in at $42 million, down 16 percent.

Analysts said the federal budget fell short of expectations with no specific measures adopted for boosting capital market performance.

“We expect investors’ sentiments to remain weak in absence of major triggers and the continual rise in coronavirus cases may weigh down the sentiments further,” BMA Capital Management said.

In the medium-term, the equity market’s recovery is likely to rest on the pace of resolution of COVID-19 and subsequent economic recovery, according to an equity report.

The number of virus cases surged past 150,000 during the week as the government moved to impose smart lockdowns in areas where virus cases have become more concentrated.

However, even as Pakistan became the 14th most affected country in terms of total number of cases, new cases in the country decreased during the week to 4,944 cases on 18 June from a high of 6,825 cases on 13 June.

The market commenced on a negative note during the outgoing week following the FY21 budget announcement, which once again included highly ambitious revenue targets.

However, rise in international oil prices and news regarding breakthrough in discovery of drug for treating COVID-19 patients improved investor sentiment.

Key factors which weighed heavily on investors’ mood, forcing them to unload their positions were sharp 42 percent contraction in large scale manufacturing and rupee devaluation risks. The rupee depreciated 1.5 percent to close at 166.63 against the US dollar during the outgoing week.

Foreign selling clocked in at $4.8 million compared to a net selling of $7.7 million last week. Selling was witnessed in fertiliser ($2.4 million) and commercial banks ($1.9 million). On the domestic front, major buying was reported by Individuals ($12.3 million) and broker proprietary trading ($0.5 million).

“We expect the market to remain relatively range-bound with short-term direction and movement hinging on economic and political triggers,” Habib Metro-Financial Services said in a report.

Sector-wise negative contributions came from banks (293 points), fertiliser (226 points), cement (183 points), oil and gas marketing companies (96 points) and power generation and distribution (91 points). Positive contribution came from pharmaceuticals (9 points) and textile spinning (3 points). Scrip-wise negative contributions were led by UBL (94 points), Lucky Cement (92 points), Engro (74 points), Fauji Fertilizer (68 points) and Hubco (65 points).