The Pakistan Stock Exchange (PSX) is likely to snap its two-week losing streak this week despite negative sentiment, as there is no major unprecedented problem on the economic side and companies’ fundamentals are strong.
The imminent pressure that the market will face this week is proposed 37 percent hike in gas tariff, expected increase in electricity price, surging crude prices, and inflationary figures. However, weekly inflationary figures showed a slight improvement last week and possible resumption of the International Monetary Fund (IMF) programme next month could provide a breather.
According to market experts, shares’ prices have suffered more as compared to the drop in the index level. They said that the index is in an oversold position and shares of some major companies are available at very attractive prices. They view the situation as buying-time.
They cite the examples of oil, fertilizer and cement sectors, which have been hit hard in recent weeks and some blue chips stocks are trading at almost a 52-week low level. Market closure above 45,600 points may act as a jumping pad for the market to break the 46,000 level.
The cement sector is facing pressure due to an increase in coal prices and cement prices may witness an increase in the coming days. However, a major drop in share prices of major cement companies is not in accordance with the coal factor and this sector may bounce back.
On the other hand, all major global markets are on the high side. October is a month of result season and it is expected that results will be good, keeping the past results in view, which will help improve investors’ sentiment.
The situation of Covid-19 in the country is improving and the numbers about new infections, deaths and active cases have been dropping constantly. World Health Organisation (WHO) Country Head, Dr Palitha Mahipala praised Pakistan for its wonderful efforts to contain the spread of coronavirus, and running an efficient vaccination drive, covering all corners of the country.
Though rupee depreciation caused panic selling, overall there is not as much chaos as being propagated by some influential market players. Though the last four months have witnessed continuous depreciation, the rupee is still trading at almost the same level where it had been 13 months ago. According to the majority of experts, PKR is set to move in a range between 169 and 172 against the USD till resumption of the IMF programme. They think that the IMF programme resumption will ease pressure on PKR and it will hopefully appreciate to some extent against the USD.
Again the European Union (EU) has extended GSP Plus status of Pakistan with six new conventions, the Asian Development Bank predicted Pakistan’s economy will grow at 4 percent in FY22 and issuance of new international Sukuk in October are likely to be welcomed by investors.
On the Afghanistan front, which remained and has been one of important factors for PSX volatility, the United States has taken steps to pave the way for aid to flow into the economically paralysed nation. The US Treasury Department on Friday said it issued two general licences, one allowing the US government, NGOs and certain international organisations, including the United Nations, to engage in transactions with the Taliban or Haqqani Network that are necessary to provide humanitarian assistance. The second licence authorises certain transactions related to the export and re-export of food, medicine and other items. These US steps will ease some pressure on PKR and also benefit PSX in the shape of improved sentiment.
The last week remained the worst performing week of the financial year 2021-22, with all five sessions closing in the red, and the benchmark KSE-100 Index shed 1,563 points (-3.4 percent) to settle at 45,073.52. Foreign buying remained $6.7 million against a net sell of $10.9 million recorded in the preceding week. On the domestic front, major selling was reported by individuals ($7.5 million) and companies ($3.5 million).
The KSE-100 Index is currently trading at a PER of 5.3x (2021) compared to Asia-Pacific regional average of 14.4x while offering a dividend yield of 8.1 percent versus 2.3 percent offered by the region.