Stocks likely to stay strong as economy starts recovering

Stocks marched ahead for the sixth straight week, where most of the focus was homed in on banks after central bank deferred monetary policy, while liquidity continued flushing down from funds and institutions into equities, amid bets this bull-trend will endure for a while, dealers said.

Pakistan Stock Exchange's (PSX) KSE-100 shares index remained dominant throughout the week, surging 4.4 percent or 1,650 points to close at 39,258 points before Eid. Average volumes settled at Rs390 million shares (down 6 percent week-on-week), while average value traded clocked-in at $101 million (up 4 percent week-on-week).

Saeed Khalid, head of research at Shajar Capital, said, “Auto sector witnessed improved activity, where we noticed bullish returns in Honda Car, prior to the announcement of new prices, which surged by approximately 23 percent during the week”.

“We believe the index to stay on its upward bullish trajectory as the investors are likely to invest on the implications of the FATF related bills passed by the National Assembly later this week,” Khalid added.

Brokerage Habib Metro-Financial in a note said, “The bulls seem unstoppable and the rally is expected to continue for the short-term, as the domestic economy is showing continuous signs of recovery”. Meanwhile, on the international front, outlook remains uncertain, mainly due to the on-going US-China tensions, the brokerage said. “If things do not improve soon, they may have a spillover effect on Pakistan’s economy,” Habib Metro-Financial report said adding, “Thus, we advise investors to remain cautious and focus their efforts on hunting value in blue chip stocks on dips”.

Tahir Abbas, director research at Arif Habib Limited, said, “The index in July 2020 scored 4,849 points or 14.1 percent. This is the largest return witnessed in the first month of a fiscal year since July 2003”.

He said the positivity during the month was on account of the 625bps (basis points) cut in discount rate since March 2020, which once again highlighted equities as the preferred asset class, with liquidity pouring into the market (by insurance companies, individuals and mutual funds).

Foreign selling continued this week clocking in at $9.7 million compared to a net selloff of $9.3 million last week. Selling was witnessed in E&P (exploration and production) ($5.1 million) and power & distribution ($1 million).

On the domestic front, major buying was reported by mutual munds ($11.3 million and companies ($2.2 million). The index breached pre-COVID level of 38,338 points, the level before the first case was reported, largely driven by signs of smoother economic recovery than previously anticipated.

The cement sector witnessed value buying as the sector’s prospects improve with increase in economic and construction activity, especially after the initiation of dam construction and CPEC (China-Pakistan Economic Corridor) moving towards its next phase.

Over the week, ECC (Economic Coordination Committee) approved pricing of petroleum products on fortnightly basis. ECC also approved excess capacity of second LNG terminal to private parties on short term basis for year. This development inspired the investors place new deals in petroleum related companies.

Banks also saw a surge in bullish activity, after the cancellation of a routine monetary policy meeting at the State Bank of Pakistan, signaling an end to the downward trends to the country’s policy rates.

Sector-wise positive contributions came from commercial Banks (482 points), cement (285 points), power generation & distribution (113 points), technology & communication (111 points), and automobile assembler (109 points). Negative contributions came from food & personal care (12 points) and Vanaspati (1 points).

Scrip-wise positive contributions were led by LUCK (148 points), BAHL (103 points), HBL (99 points), TRG (95 points), and HUBC (77 points).