Following on from last week’s gains, the PSE-100 Index closed on February 4, 2016 at 32,479 points, up 3.77%WoW. This can be attributed to the central bank maintaining status quo on monetary policy vibrant interest of investors due to the results season. Overall, activity at the Exchange exhibited some recovery, average daily traded volume for the week rising to 144 million shares from an average of 117 million shares a week ago.
Key news flows guiding the market included: 1) the country’s annual inflation inched up to 3.32%YoY (slightly above market expectations) in January’16 as compared to 3.19%YoY in December’15 due to increase in the prices of food items, 2) Prime Minister Nawaz Sharif and COAS Raheel Sharif inaugurated the Gwadar-Turbat Highway on Wednesday, an infrastructure develop project included in China Pakistan Economic Corridor , 3) outstanding loans to private-sector businesses amounted to Rs3.2 trillion (up 8.8%YoY), while consumer loans climbed to Rs292.9 billion at the end of CY15 (up 11.6%YoY) as a result of the current cycle of monetary easing, 4) talks with the IMF under the 10th review of the EFF program for releasing US$500 million, marred by a delay in privation of PIA and power generation assets and 5) GoP approved a reduction in prices of petroleum products by Rs5/ltr as the FBR levied fixed sales tax per liter on all petroleum products, replacing the existing mechanism of charging sales tax on percentage basis.
Scrips that led the bourse included HCAR, HBL, BAFL, SHEL and UBL, while laggards were MTL, SSGC, DGKC, NML and FFC. Interest of foreign investors’ slightly improved with the decline in outflows to US$2.1 million as against US$7.0 million outflows in the prior week. Devoid of key events, earnings season entering full swing should re‐invigorate investors’ interest. EFERT, Attock group companies (ATRL, APL, POL, ACPL), Banks (MCB, ABL) and PTC are scheduled to announce earnings. Data points pertaining to US oil inventories and the possibility of an OPEC meeting may keep oil prices in check, flowing through to the domestic Oil & Gas sector.
During the week ending 29th January 2016 liquid foreign exchange reserves held by State Bank of Pakistan (SBP) decreased by US$212 million to US$15,435 million as compared to US$15,647 million a week ago. Total reserves held by the country were reported at US$20,275.8 million. The break-up of the foreign reserves was: reserves held by SBP US$15,435.4 million and net reserves held by commercial banks US$4,840.4 million.
In line with expectations SBP opted to keep interest rates unchanged in its January’16 Monetary Policy Statement. While uptick in private sector credit and Large Scale Manufacturing growth were highlighted as key positives, risks from lower crop production hampering GDP growth trajectory and M2 growth acceleration warranted status quo.
Going forward, CPI inflation is likely to see a noted uptick from March’16 onwards on higher food inflation and seasonal impacts, which along with NFNE core inflation moving up, keeps prospects for further easing muted. With Pak Rupee also likely to remain volatile on regional pressures and lower exports, analysts see room for a reversal in rates from September’16 onwards. With few quarters of the market anticipating a rate cut, the bourse can see some retraction in select sectors, though market performance should remain largely guided by the ongoing results season.