Karachi, April 03, 2023 (PPI-OT): Mar-23: Delayed IMF saga drags KSE100 by 1.3%

Ambiguity, PKR deval takes US$-based returns to -8.9% for Mar

Interest in index heavy-weights in anticipation of IMF’s nod took KSE100 Index up 3.3% by mid of Mar-2023. The steam however fizzled out as political noise began to increase, which was then piled on by ambiguity over flows from friendly countries – a key condition to get IMF’s nod for the ninth tranche.

From there, the index took a sharp decline of 4.5%, closing the month with a negative return of 1.3%. This took 1QCY23 performance to -1%. During the same time, devaluing PKR against US$ escalated losses in US$ terms where 7.8% PKR devaluation in March took US$-based KSE100 returns to -9.0% in March and 1QCY23 returns to -21.0%. Increasing uncertainty, coinciding with limited trading hours in Ramadan, further declined investor participation towards the end of the month. Average daily traded volumes declined 5% MoM while trading value reduced 20% MoM.

Investor-wise participation reflected most segments as net sellers, with Mutual Funds and Foreigners topping the list. Almost all selling was absorbed by Companies with net buying of US$37mn this month (supported by ongoing Engro Corporation buy back).

Sharper monetary tightening continues

Delay in the IMF program together with political uncertainty and 2 preponed MPC meetings remained among talking points this month. The delay in IMF continued to prolong, which hinged upon formal assurances from friendly countries, followed by multiple visits by government officials to the same.

Inflation levels soared further, scaling 35.4% YoY in Mar-23 which is now the highest level since 1965, following the second-highest level just last month. This is expected to further rise, before beginning to decelerate after a couple of months. PKR/US$ also witnessed a turbulent month, sliding by 7.8%. During the month, rates in T-Bill auctions rose to 22%, signalling expectations of a rate hike in upcoming MPC meeting scheduled on April 4. While we expect a 150bp increase taking Policy Rate to 21.5%, we do not rule out a higher increase. The March MPS had seen SBP raise rates by 300bp.

Some respite on external front

Trade deficit data showed narrowing of 35% MoM to US$1.7bn driven by 18% contraction in imports which now stands at a 30-months low. While this led to a negligible Current account deficit (CAD) – reported at 24-month low of US$74mn, Pakistan’s Balance of Payments for Feb-2023 came in positive at US$0.92bn buoyed by external flows from China. While BOP data for March is awaited, SBP reserves have inched up to US$4bn by 3rd week of March – leading to expectations of another benign current account reading.

Moreover, while Moody’s once again slashed Pakistan’s credit rating, this time to Caa3, outlook was switched from Negative to Stable. The immediate term sentiment on external account and inflation, in addition to IMF developments, is also likely to take a cue from international oil prices where recent weakness was followed by announcement of a surprise production cut from OPEC members.