Stocks likely to stay positive on tamed inflation

The capital market showed recovery owing to strengthening currency and status quo maintained by the central bank on interest rate, otherwise rise in virus infection rate had put a lid on investments in fresh deals, dealers said, expecting positivity in upcoming week.

Pakistan Stock Exchange’s KSE-100 shares index rose 1.56 percent or 620 points during the outgoing week to conclude at 40,807 points week-on-week (WoW).

Muhammad Saeed Khalid, head of research at Shajar Capital said, “We expect the stock market will likely perform on the expected announcement of lower inflation numbers for the month of November 2020.”

Also, announcement of cement industry numbers might create positivity among investors regarding cement stocks. The oil marketing companies may likely slow down for the month of November 2020 mainly on account of smart lockdown strategies that have been imposed in the country, Khalid added.

Umair Naseer from Equity Sales Desk of BMA Capital Management said, “Owing to improved macroeconomic indicators, strengthening rupee against the greenback, and unchanged policy rate”, the KSE-100 index would continue its positive momentum in the coming week.

“We still advise investors to remain cautious amid soaring Covid-19 infections, despite the announcement by the government to keep businesses and factories open,” he said.

Accumulating positions on dips would be the best strategy going forward. Additionally, PIB (floaters) and treasury bill auctions were also scheduled next week, in which the government plans to raise Rs430 billion cumulatively, Naseer added.

During the week, investor participation climbed by 66 percent. Average daily volumes clocked in at $284 million shares, whereas average traded value improved by 56 percent to average at $68 million.

Foreign investors sold equities worth $9.3 million. This selling was mainly absorbed by local companies and insurance with inflows of $3.4 million and $2.9 million respectively.

Equities remained upbeat during the outgoing week despite ongoing rollover week and spike in coronavirus cases.

The government already imposed smart lockdowns in major cities and closed educational institutes, which shook investor confidence a little. However, the market recovered after the prime minister confirmed that businesses and factories would not be closed.

Following the news, the index surged past the 41,000 mark. Recovery in global equities market on hopes of arrival of effective Covid-19 vaccines also triggered performance in the local market.

On the economic front, the State Bank of Pakistan (SBP) monetary policy committee kept interest rates unchanged at seven percent. The SBP's foreign exchange reserves crossed $13 billion mark supported by some loan inflows.

During the week, E&P stocks remained in limelight as investors were buoyed by the surge in oil prices to near pre-Covid levels.

The rally faltered near the end of the week over supply concerns and doubts related to vaccine distribution. Although still high with over 6.5 percent WoW increase, WTI Crude oil closed at $45.3/barrel, while Brent oil closed at $48.1/barrel.

Another factor which helped strengthen investors’ mood was the recovery in the value of rupee. Domestic currency significantly recovered by around one percent to Rs159.4 against dollar ahead of the Thanksgiving holiday in US, as opposed to the one-month low it hit on Monday with parity standing at Rs161.1.

The sectors which lifted the index during the week were technology and communications (8.0 percent WoW), E&Ps (6.9 percent WoW), and chemicals (2.7 percent WoW), whereas OMCs (0.7 percent WoW) and automobiles (0.7 percent WoW) declined.