Third wave remains key threat to market

The capital market started the week negatively due to the perturbing political situation last weekend, though some relief was experienced on account of robust result announcements later, rising Covid-19 cases quashed the positivity with threats of third wave still persistent.

The KSE-100 benchmark shares index shed 1.32 percent or 598.87 points to close the week at 44,706.76 points. KSE-30 shares index shed 1.4 percent or 261.31 points to close at 18,276.47 points.

Ahmed Lakhani at JS Global Capital said the KSE-100 index closed down 1.3 percent with almost similar participation as seen last week.

“While political noise slightly subsided this week, the increasing Covid cases kept investors cautious of fresh buying, as the government warned for amplified steps, including lockdowns, to control the spread of the virus.”

Foreign investors turned net buyers this week accumulating securities worth $7.3 million, with notable buying in the banking ($2.4 million) and technology ($4.8 million) sectors. On the other hand, companies disposing securities worth $5.3 million and mutual funds ($7.7 million) emerged as key net sellers.

Average daily volumes declined 10 percent to 333 million shares, while average value of traded shares declined 3.0 percent to $97 million.

An analyst at Pearl Securities said the market remained volatile during the week on the back of political riots and the shutter down strike announced by a religious party, World Bank setting tough conditions for $1.5 billion lending, and higher than expected corporate results in steel and banking sectors.

“Moreover National Command and Control Center (NCOC) announced imposing new restrictions as Pakistan has observed 22,671 new Covid cases, while 527 deaths were recorded this week.”

Contribution to the downside was led by Oil and Gas Exploration Companies (210 points), cement (78 points), power generation (93 points), chemical (79 points), and oil and gas marketing companies (77 points).

Sectors that contributed positively included commercial banks (160 points) amid strong result outcomes, technology (58 points), and fertiliser (28 points).

On the sector front, Ministry of Energy is expected to submit a new Refinery Policy to the Economic Coordination Committee (ECC) next week, providing incentives for existing players as well. The refinery sector closed 4.6 percent down this week.

In addition, higher than expected results announced by banks led to the sector outperforming the benchmark index by 7.2 percent.

Other major news during the week included central bank’s reserves declining by $63 million; Rs800 billion proposal for Public Sector Development Programme in budget 2021-22; UK’s pledged support on FATF.

Also, government raised Rs708 billion, cut yields on T-bills, and foreign direct investment (FDI) in nine months declined 35 percent.

An analyst at Arif Habib Limited said while the NCOC had advised stricter restrictions and shorter work hours, a complete lockdown on a national level was ruled out.

This, the analyst said would be a sigh of relief for the business community. Although, the third wave of the novel coronavirus was considered more lethal than the last two, which “remains a key risk for the market.”

“We do highlight that the strong result season appears to be a solid indicator of the economic and corporate recovery. Hence, we advise market participants to cherry pick blue chip companies with strong fundamentals,” the analyst added.