Continuation of political uncertainty in the country, following the Punjab and KP government dissolution, kept the market under pressure during the week ended on January 20, 2023.
The KSE-100 index lost 1,915.5 points or 4.8% to end Friday’s trading session at 38,408.0 points. Volumes dried, with daily volumes averaging 143.2 million shares as compared to 183.3 million shares in the earlier week, registering a 22%WoW decline.
On the currency front, the PKR depreciated by 0.66%, ending the week at PKR229.67/US$.
Other major news of week were: 1) July-December 2022 remittances fell 11%YoY to US$14.1 billion, 2) World Bank promised US$615 million for flood-relief work, 3) E&P companies raised alarm on brewing foreign exchange crisis, 4) Barrick Gold plans to start productions in 2028 at Reko Diq mine, 5) GoP to announce RKR200 billion mini-budget to appease IMF, 6) July-November 2022 LSMI output declines 3.58%YoY, 7) FDI plunges 59% during first half of the current financial year, 8) Current Account deficit dipped 60% in H1FY23 on lower imports, and 9) GoP expressed readiness to meet all IMF demands to revive loan program.
The reserves held by State Bank of Pakistan (SBP) showed a WoW increase for the first time in about 8 weeks, up by US$258 million to US$4.6 billion, corresponding to less than 1 month of import cover.
Sector-wise, the top performing sectors were: Modarabas, Leasing companies, and Insurance, while the least favorite sectors were: Cement, Leather & Tanneries and Cable & Electrical Goods.
Stock-wise, top performers were: EFUG, DCR, FFC, COLG, and ABL, while laggards included: KTML, CHCC, KOHC, CEPB, and TGL.
Foreign Investors were the major buyers with net buy of US$4.88 million, followed by Banks/DFIs with net buy of US$4.07 million.
Mutual funds were major sellers, with a net sell of US$9.64 million followed by Insurance companies with a net sell of US$4.96 million.
The market trajectory next week would be determined by the Monetary Policy Committee decision, scheduled to meet 23 January 23, 2023. Market is largely expecting a 100 bps increase in policy rates. It seems the market has already priced in the 100bps hike, and any deviation in the decision could impact the market.
In addition to this, the external position of the country would remain in focus, with the delay in resumption of the IMF program detrimental to the sentiment in the market.
The IMF’s stamp of approval would unlock flows from bi-lateral and multilateral sources—the need of the hour considering the alarming reserves position of the country.
The GoP would have to take difficult decisions to appease the IMF, which includes additional revenue collection of PKR200 billion and gas and electricity tariff hikes, along with a market-determined exchange rate.
We continue to advocate companies that have dollar-denominated revenue streams as the weakness in the currency is expected to persist.