Karachi, October 01, 2021 (PPI-OT): Weekly Review

KSE-100 index remained sluggish during the outgoing week, after losing 1,562pts or 3.4% over the previous week on a 25bps increase in interest rates and upside risks to inflation estimates emerging. The index closed at 44,872pts, down 0.45%WoW, where any strength in the market was outweighed by profit taking. On geopolitics front, more than 20 republicans introduced a Bill in the US Senate which seeks to impose sanctions on the Afghan Taliban and their supporters, which may include Pakistan. This led to deepening bearish sentiment in the market.

However, sanity prevailed in the later part of the week as passage of bill could mean a complete breakdown of US Pakistan relations and regional destabilization, which would benefit no one. More serious, was the continuous uptrend in commodities, with coal touching US$200/MT by the end of the week. The cement manufacturers increased cement prices by PkR25/bag in response, which kept cement sector afloat. Oil price cooled down slightly in anticipation of increase in OPEC+ production to be announced in the upcoming meeting. However, weakening rupee and bull-run in energy prices underscored the end of monetary easing era that ensued with the onset of COVID’19.

Other major news flows during the week were, i) Paris Club extends Pakistan’s debt payment deadline – Pakistan owes US$11.5bn to the entity, ii) Govt. considering to approve payment to 2002 IPPs, iii) Fitch expects dollar to reach Rs180 in 2022, iv) Import of additional 114 items – SBP imposes 100pc cash margin requirement, v) POL products’ prices increased – PkR4/2 per litre for Petrol/HSD and vi) Creditors likely to restructure Telecard’s ‘TFC Loan’. Volumes relatively dried up with avg. daily turnover standing at 354.9mn shares as against 383.5mn shares in the previous week. Stock wise gainers were, i) KEL (+11.4%WoW), ii) HASCOL (+8.8%WoW), iii) BYCO (+8.5%WoW), iv) ARPL (+6.9%WoW), and v) ANL (+6.1%WoW), while laggards were, ATLH (down 7.7%WoW), PIOC (down 7.5%WoW), SFL (down 7.5%WoW), SHFA (down 6.4%WoW), and v) AGP (down 6.2%WoW).

Outlook

Market is likely to take direction from the upcoming result season and IMF review, where formal talks are expected to begin next week. The GoP seems to be preparing for strict measures to increase tax base. Meanwhile gas and tariff hikes seems to be a possibility as well. Investors should adopt a top-down approach to investing where possibility of further interest rate hikes could bring Banking Sector into limelight while Techs and Textiles (on currency depreciation where stronger earnings are yet to be priced in) are other sectors of interest.