Dollar might touch record high
Fear of interest rate to curb volumes
Pakistan stock exchange likely to remain subdued as investors feared that soon through emergent meeting a new monetary policy to announce while to remain under pressure and might touch record high mark unless some workable plan announce by care taker government to improve confidence of business community.
The market performance remained dull with the KSE-100 closing at 48,218, falling by 206 points or 0.4 percent, experiencing highs and lows of 48,794 and 47,894 points respectively, during the outgoing week.
Foreigner buying was witnessed during this week, clocking in at $2.38 million compared to a net buy of $2.92 million a week ago.
Saad Rafi, the head of equity sales at Al-Habib Capital, holds an optimistic view of the market’s long-term prospects.
He observes a seamless transition towards a caretaker government, led by a Cabinet composed of technocrats. This development has been warmly welcomed by market participants, who also reacted positively to the announcement from the Election Commission.
Saad emphasizes that there’s a prevailing belief that this team of technocrats is well-positioned to establish a solid foundation and make swift decisions, which could ultimately satisfy the International Monetary Fund (IMF). Moreover, he highlights the team’s efforts to enhance relations with the United States, a move seen as beneficial for both the market and business sectors.
Such efforts hold the potential to attract higher levels of foreign investment.
Looking ahead, Saad anticipates a mixed market performance in the upcoming week, with a reduction in trading volume. Divergent opinions are emerging regarding the trajectory of interest rates. While one camp suggests that interest rates will remain unchanged, others argue that they have not yet peaked, citing potential inflationary pressures due to significant increases in petroleum product prices.
Faisal Dedhi, Deputy Head of Sales at Foundation said one phase has been completed after care taker set up under the lead of Anwar Ul Haq where announcement of Dr Shamshad Akhtar as the Finance Minister signalled some reforms expected.
Moreover, he said E&P sector might see bullish activity if finance minister along with her team came out with a plan to resolve gas and oil sector circular debt through pay out system. The resolution of circular debt plan has got nod from the IMF as international donor agency wants overall fiscal discipline which can be possible through reduction of circular debt.
Faisal said after the rise in petroleum products inflation rate is bound to rise and to curb there is a possibility that interest might see a surge. Market view suggest interest rate might see an increase of 1.5 percent 2 percent.
“Non resolution or delay in circular debt and rise in interest rate to combat inflation might put pressure on the market especially oil and gas sector”, he said.
Shahryar Butt, head of Portfolio Investment at Darson Securities said investors pinned hope on the current new caretaker setup.
The new finance minister Dr Shamshad Akhtar is quite an experienced personal in finance and economic affairs and could steer the economy from present mess.
Economic conditions have been precarious and missed several targets like revenue collection from petroleum development levy and fiscal deficit soared to 7.7% of GDP as per expectation of 7%, he said.
Moreover, another challenge for the economic managers have been curbing depreciation and suggested one has to keep a close eye on dollar next week. Moreover, Shahreyar said that pressure on the rupee would be consistent because following the opening of imports current account after three months falls in red zone.
He added that in July current account deficit touched $801 million which showed pressure to mount in coming weeks on domestic currency.
Ali Nawaz, CEO of Chase Securities said that the Equity Market consolidated during the week as investors viewed appointment of caretaker setup with close eyes. “Increase of fuel prices and currency devaluation raised some inflation concerns”, he said. Going forward, market is expected to perform better on reforms to be taken from newly appointed caretaker setup. Corporate results season next week will also improve market sentiments, Ali said.
Abdul Azeem, head of research at Spectrum Securities said that the stock market is expected to remain positive next week following the interim government appointment, as the caretaker PM has vowed to continue the economic policies, it is anticipated that the circular debt issue will be addressed soon and the market will be further supported by the expected positive corporate financial results. The PKR depreciation against USD along with an expected increase in petroleum prices will further increase the inflationary pressure and have a negative impact on the market. Moreover, the further delay in addressing the circular debt issue by the interim government could have also the negative impact on the market.
FOREX MARKET
“Whenever the government changes and new care taker setup sits, currency always witness volatile session”, Faisal Dedhi said.
Already in couple of days of new care up setup domestic currency has depreciated.
Dollar in open market trading between Rs 305 to Rs 310.
The difference between bank and kerb market has widened which is bit alarming but need some stringent measures from the current government to trim the difference and also control the depreciation of local currency.
The consistent pressure on rupee hints that in the upcoming week dollar to touch all time high level as it is only away by Rs 3.15.
On May 11, 2023 dollar closed at its peak of Rs 298.93 while during the outgoing week it closed at Rs 295.78.
During the outgoing week dollar gained value by Rs 7.29 where analysts cited that it mostly due to opening of imports and higher prices in global markets putting strain on foreign exchange reserves.
