PSX braces for correction after two weeks of gains

Stocks closed the week on a strong note mostly because of institutions shifting towards equities from fixed investment avenues; however the massive gains made over a bull-run spanning two weeks are likely to run into correction next week, dealers said.

Pakistan Stock Exchange's (PSX) benchmark KSE-100 shares Index surged 3.2 percent or 1,139 points to close at 36,190 points and touched a peak of 36,280 points and a low 35,002 points.

Topline Securities in its weekly market review said, “This positivity in the market can be attributed to excess liquidity, where return on fixed income instruments have become unattractive (given the decline in policy rate by 625bps to 7 percent from March 2020)”.

Major events during the week were first IPO of 2020 of ‘The Organic Meat Company’ oversubscribed by 1.7x in its book building process, cement dispatch numbers coming in at 30 percent year-on-year higher in June 2020, SBP’s (State Bank of Pakistan) further reducing the markup rate to 5 percent on refinance schemes, and central bank forex reserves crossing $12 billion mark.

Average volumes settled at 349 million shares (up 39 percent week-on-week) while average value traded clocked in at $74 million (up 44 percent week-on-week).

A leading analyst said for a couple of sessions in the upcoming week, the market might witness some technical correction as the index has scored more than 2800 points in two weeks, inviting some profiting-taking from the investors.

However, he said, with the COVID-19 curve flattening out, investor sentiment might improve after further easing of the lockdown. “With stock market and banks resuming the pre-COVID hours, things are likely to take get better down the line, especially business activities, improving economy in general,” he said.

Arif Habib Limited in their research note said, "We expect the market to maintain its positive momentum in the coming week”.

Moreover, with the SBP’s foreign exchange reserves climbing up, “we expect the PKR/USD parity to stabilise”, brokerage house said.

Week-on-week, volume increased 39 percent, where turnover hit an almost six-month high reaching 467 million shares in a single session.

The sectors which led the show were autos up 8.8 percent during the outgoing week, banks up 6.6 percent, and oil & gas marketing companies rising 4.4 percent.

The massive reduction in policy rate limited the investment avenues in the fixed income instruments along with fear of tie-up of liquidity due to low activity in real-estate sector encouraging investors towards equities.

Decline in active COVID-19 cases and materialisation of inflows from international financial institutions, kept investor sentiments upbeat, which also reflected in improved participation.

Foreign selling clocked in at $9.5 million compared to net selling of $20.5 million last week.

Commercial banks and cement-makers sold equities worth $2.9 million and $2.3 million, respectively.

On the domestic front, major buying was reported by insurance companies ($4.6 million) and companies ($2.8 million). Another factor which ignited the market was the continuous institutional support, following the government decision to ban institutions from parking their funds in the National Saving Schemes (NSS), which would provide much needed liquidity to the market.

Reportedly, around Rs400 billion has been deployed in the NSS by institutions, while for the sagging market around Rs10-15 billion is enough change the present sluggish trend for the better.

Other key developments during the week which cemented the overall sentiment were World Bank’s announcement to lend $200 million for Pakistan's locust control, K-Electric (KEL) to get more supply from national grid to control ongoing load-shedding, and Pakistan-China border opening from July 15.

Sector-wise positive contributions came from commercial banks (495 points), cement (141 points), oil & gas exploration companies (135 points), automobile assembler (82 points), and oil & gas marketing companies (69 points). Negative contributions came from power generation and distribution (23 points) and fertiliser (17 points). Scrip-wise positive contributions were led by HBL (141 points), PPL (70 points), UBL (65 points), NBP (46 points) and INDU (43 points).