ISLAMABAD: After experiencing a significant boost during the last one and a half months, the Pakistan Stock Exchange is expected to remain under the influence of profit-taking, with the index possibly witnessing an erosion of 1000 points. However, with the interim setup to be announced and the possibility of a strong economic team, the index could possibly bounce back towards recovery, along with the greenback dipping for a couple of more sessions.
The stock market remained mostly bullish during the outgoing week, with the KSE-100 closing at 48,586, gaining 1,509 points or 3.2 percent, having marked highs and lows of 49,405 & 47,077 points during the period under review.
The average traded volumes clocked in at 291 million shares, up by 46.6 percent from the preceding week, while the traded value was reported at $50.5 million, up by 35.2 percent on a week-on-week basis.
Faisal Shaji, Chief Strategy Officer at Standard Capital Securities, said that huge profit-taking is expected on Monday and Tuesday as most of the developments have already been factored in, with no further positive news to cheer the mood of the investors.
Expectations from Interim Government
He pointed out that most investors have focused on the new interim government setup, where the top-of-the-line name of Hafeez Shaikh has been pinned for the technocrat team to lead the caretaker setup. With his economic vision, there is a possibility that the economic conditions would improve, as Pakistan is already in the IMF and due for review next month, he added.
Despite profit-taking being expected, there is a possibility that the refining sector would perform well in the last session of the outgoing week, with a good amount of volume generated, as the refining policy is due to be announced.
Another market expert, Shehryar, said that the government was expected to announce the refining policy on Monday, with a focus on increasing local output and providing a series of incentives to lure investments in brownfield projects.
He further said that another key development related to the dissolution of the National Assembly, where the caretaker prime minister would likely be appointed, having good relationships with bilateral countries and the IMF to smooth sail the economy.
“The caretaker set up is important from the investors’ perspective to determine what kind of rebuilding steps would be taken,” he said.
During the outgoing week, the index scored 1500 points, and the last two sessions saw profit-taking, which appeared to be a good portent for the market to consolidate gains, Shahryar said.
Faisal Dedhi, Deputy Head of Sales at Foundation Securities, said that in the coming week, the main drivers for the market would be state-run companies, where the government took a firm stance to reduce gas circular debt.
Following the cutting of circular debt, hopes were raised that dividend announcements would be encouraging from the gas companies.
He said that the index has reached a tricky level as it is facing resistance after crossing 49000 points for the first time in six years.
However, much would depend on the weeks to come following the arrival of the interim set up. The business community and investors’ eyes would be on Islamabad to see what measures the caretaker government would take to improve the economy.
“The major crucial aspect for the market has been inflation. If it moves further sideways, one cannot rule out a raise in the benchmark interest rate,” Faisal said.
A rise in interest rates could trigger some selling pressure; otherwise, the fundamentals are intact, and the index is expected to see some healthy gains.
“We expect the market to remain exuberant on the back of improved investor confidence. Though the IMF program is essential to keep the government disciplined and is critical for shaping macros,” an analyst from BMA Capital Management said. “We firmly believe that economic discipline is fundamental for the market to carry momentum; that is why we recommend a mix of defensive and aggressive investment strategies by favoring high-yielding stocks, growth stocks, and mature companies,” Faisal went on to say.
Abdul Azeem, head of research, remarked that the KSE 100-index was poised to remain positive in the upcoming week. This optimism stems from the expectation pertaining to the resolution of gas circular debt and expected positive development regarding Pakistan’s sovereign fund for foreign investors’ attraction, he said.
Additionally, the upcoming positive corporate results announcement and massive tech IPO launch of Symmetry Group are expected to leave a positive impact on the market, Abdul said. However, he added that the market would face challenges due to the rising trend of oil prices and any negative political development regarding the election.
Forex Market
According to foreign exchange dealers, the dollar movement would be range-bound for a couple of days, as some improvement is expected in the value of the rupee. However, with the announcement of the interim set up next week, the dollar is expected to rise, as the new regime would take time to settle.
The value of the dollar against the local currency might hit a level of Rs. 290 at the interbank and Rs. 300 at the open market soon. Inflows from the Asian Development Bank, World Bank, and some pledges promised in the Geneva Convention expected this month, if that materializes, the rupee might stabilize.
During the last two days of the outgoing week, the dollar gained over Rs. 2 to close at Rs. 286.97, while in the open market, it remained unchanged at Rs. 292. However, during the session, the dollar touched a peak of Rs. 289.38 on Aug 2. The rupee strengthened sharply against the greenback by the close of the week.
