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PSX may bear burnt of inconclusive talks with IMF

The Pakistan Stock Exchange (PSX) is likely to bear brunt of inconclusive talks between Pakistan and the International Monetary Fund (IMF) for the resumption of the Extended Fund facility (EFF), and massive increase in oil, gas and electricity prices in the week starting today (Monday).

Moreover, consistent depreciation of the rupee against the US dollar that may continue following inconclusive talks with IMF, continuous surge in global commodity prices and uncertainty on the geopolitical front may keep the bourse under pressure. The inflationary figures also remained on a relatively higher side as weekly inflation surged by 0.20 percent for the second straight week ended on October 14, 2021, after witnessing an increase of 1.21 percent in the preceding week, while it went 12.66 percent up on a year-on-year basis. This may dent the investors’ confidence, which is already at a very low level. Although the feel good factor returned last week, as the stocks closed the week in the green zone after four weeks in a row, yet the market bounced back during the last two sessions on the expectation of resumption of the Extended Fund facility (EFF) by the IMF. Now the IMF factor along with other negative pieces of news may cause heavy selling in the bourse.

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However, the corporate profitability is likely to dictate the market performance amid the results season, as there are strong expectations that earnings will grow from eight percent to 10 percent for the first quarter of the current fiscal year. Furthermore, the expected formal announcement of the new Inter-Services Intelligence (ISI) chief will also help settle jitters on the bourse.

There is no major unprecedented problem on the economic side while companies’ fundamentals are also strong. The financial results of the companies are being announced and most of the companies have shown unprecedented results in their history. Moreover, decline in infection ratio of the novel Coronavirus in Pakistan and return to normalcy may give some support to the equity market.

On the other hand, shares’ prices have suffered more as compared to the drop in the index level, and shares of some major companies are available at very attractive prices. Analysts believe the market participants should look to invest in the companies with strong fundamentals instead of going for very small stocks as shares are available in the market at very lucrative prices.

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The benchmark KSE-100 Index of Pakistan Stock Exchange (PSX) is currently trading at a PER of 5.2x (2021) compared to Asia Pacific regional average of 14.7x while offering a dividend yield of 8.1 percent versus 2.2 percent offered by the region.

Sector-wise positive contributions last week came from commercial banks (393 points), oil & gas exploration companies (136 points), fertilizer (123 points), cement (98 points), and pharmaceuticals (28 points). Whereas, sectors which contributed negatively were technology & communication (342 points), and food & personal care products (50 points). Scrip-wise positive contributors were HBL (153 points), PPL (87 points), UBL (67 points), LUCK (59 points) and OGDC (42 points). Meanwhile, scrip-wise negative contributions came from TRG (260 points), SYS (70 points) and PAKT (27 points). Foreign selling continued last week, clocking-in at $13.3 million compared to a net sell of $3.7 million in the preceding week.

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