KARACHI: The stock market managed to snap the three-week losing streak which had dragged the KSE-100 index down by a staggering 8.6 per cent as it recovered 451 points (1.1pc) to close at 42,074 in the week ended Friday.

Reports over the progress in selection of a caretaker prime minister ahead of the general elections was the major factor that set the direction of the market in the outgoing week. Stocks staged a robust rally on Tuesday with the index adding 1,095 points (2.63pc) on optimism that the government and opposition had reached consensus on the choice of the caretaker prime minister.

Trying to take the first-mover advantage, institutions started to mop up blue-chip scrips that had reduced to attractive valuations after weeks of battering. But the market could not hold on to all of the early gains as politicians were unable to converge on any of the candidates for the interim PM slot until the close of the last session on Friday.

The index pared its gains on profit-taking majorly in the last two sessions also on growing investor anxiety over the depleting foreign exchange reserves and widening current account deficit. Investors also worried over the developments related to possible FATF grey listing for terror-financing with the plenary meeting scheduled for June 24.

Foreign investors were disinclined to cherry-pick value stocks even at decent prices and instead resorted to heavy selling of equities worth $26.1 million, up over the earlier week’s figure of $20m. Among local participants, insurance sector absorbed much of the foreign selling through purchase of $23.2m worth shares. On the other hand, mutual funds were net sellers of $4.4m.

Sector-wise, commercial banks recorded the highest gains of 212 points, followed by fertilisers at 136 points, oil and gas exploration companies 83 points while selling was seen in chemical, lower by 29 points, cement 27 points and auto assemblers 21 points. Rally in banks was due to expectation of an interest rate hike, attractive prices and opening of valuations that happened after constant foreign selling.

Auto sector is consistently underperforming as the government barred non-filers from buying a new car, likely to hit sales of the assemblers. Indus Motor has lost around 18pc since the budget announcement, while Honda Atlas Cars and Pak Suzuki have shed 15pc and 9pc of their stock values.

Scrip-wise major contributors were Pakistan Petroleum, increasing by 84 points, Engro Corporation 54 points, Hub Power 50 points, Fauji Fertiliser 46 points and Bank Al Habib. The average daily volume for the outgoing week increased by 4pc over the preceding week to 119m shares while the average traded value contracted by 3pc to $43m. Faysal bank with 40.41m shares, Pak Elektron 38.24m shares, Fauji Cement 34.53m shares, Bank of Punjab 33.09m shares and First Dawood Investment Bank 30m shares.

Key news flow during the week related to 10MFY18 current account deficit widening 50pc to $14.035 billion on the back of increasing merchandise imports outweighing exports; National Assembly passing Budget’18; foreign exchange reserves falling by$415 to reach below $17bn-mark.

Market gurus expect shares, except for the banking sector, to remain under pressure in the upcoming week on account of the increase in policy rate by 50bps to 6.5pc in the monetary policy announced on Friday. Developments on the political front would have major impact on the market movement going forward.

Published in Dawn, May 27th, 2018