KARACHI: In a pre-election rally marked by intense volatility, the stock market pressed ahead in the outgoing week with the KSE-100 index recording gains of 951 points (2.36 per cent) to close at 41,221.75 points. Most of the improvement was attributable to liquidity inflows in the local mutual funds and value buying at low levels.

The week kicked off with currency weakening by 5.7pc against the greenback which followed the 100bps rate hike in the policy rate by the Central Bank over the earlier weekend. Index was mainly driven by heavyweight sectors: banking went higher by 269 points, cements 158 points and fertilisers 125 points.

With the political crisis deepening early in the week on the arrest of Nawaz Sharif and his daughter, market opened on a negative note, plunging 605 points on its first trading session. However, fresh liquidity deployed by local asset management companies provided the much-needed support.

Trading activity substantially improved during the week with average daily turnover swelling 68pc over the earlier week to 219m shares. Bank of Punjab emerged as a top volume leader with a turnover of 78.62m shares, followed by Pakistan International Bulk Terminal 59.24m, Fauji Cement 55.70m, K-Electric 51.38m and Lotte Chemical 49.45m shares.

Foreign investors continued their selling spree, dumping another $21m worth of equities during the week in almost all sectors except fertilisers where foreigners built exposure of $1.5m. The foreign sell-off was absorbed by local investors who picked up stocks amounting to $22.1m.

Insurance companies led buying with investment of $12.97m, followed by individuals $9.83m, companies $7.31m and mutual funds $6.63m. On the other hand, banks and brokers remained net sellers of shares worth $9m and $6.1m, respectively. Meanwhile, economic instability also resulted in a decrease in foreign direct investment by $11.8m.

Sector-wise, commercial banks and cements remained in limelight throughout the week owing to hike in interest rates and increased in cement prices. Furthermore, chemicals, transport and technology and communication further boosted market as being the major beneficiaries of the rupee devaluation.

Cement sector posted 5.7pc return on the news of price increase by Rs10 per bag in the Northern region. Similarly, fertiliser sector returned 4.2pc on Rs50 per bag increase in urea prices. Steel and cement garnered investors’ interest due to increase in retail prices as the rupee depreciation impact was passed on. Power generation companies gained 2.2pc, oil and marketing companies 2.4pc and exploration and production 0.1pc.

Among stocks, the leading gainers were United Bank, up 10.59pc, Lucky Cement 4.93pc and Hub Power 3.97pc, adding 291 points. On the flip side, Philip Morris Pakistan 20.41pc, National Bank of Pakistan 3.20pc and Abbott Pakistan 4.30pc took away 67 points.

With the country heading to general elections on Jul 25, political euphoria was once again likely to dominate and set the tone for economic stability and direction of the market, in the upcoming week. Investors can possibly stay on the sidelines till election results.

Post-election, market will react positively to strong mandate irrespective of which political party takes the lead. However, vulnerable economic position and persistent foreign selling remain major concerns for valuations.

Key news flows included: current account deficit reached record $18bn for FY18, reflecting a growth of 42.6pc year-on-year from $12.6bn in FY17. Total foreign exchange reserves declined by $402m to $15.7bn while the central bank reserves plunged 4.4pc on a weekly basis, touching $9.1bn (implying import cover of 1.9 months), large scale manufacturing grew 2.76pc in May’18 with 11MFY18 growth clocked at 6pc.

Published in Dawn, July 22nd, 2018