KARACHI: Stocks staged spectacular rally in the outgoing week, underpinned by a market-friendly economic reforms package announced by the government; receipt of final instalment from Saudi Arabia of the agreed $3 billion and the foreign investors’ interest in net buying of $17 million worth equity, followed by nearly nine months of net sell-off.

The KSE-100 index accumulated 958 points (2.44 per cent) during the week and closed at 40,265. It was the fourth consecutive week of a positive close with the index representing cumulative gains of a splendid 8pc.

The second mid-term budget or the Finance Supplementary (Second Amendment) Bill, 2019 focused on ease of doing business and provide incentives to export-oriented sectors. As for stocks, a key demand of the market to abolish advance tax of 0.02pc was accepted, while the government also allowed capital losses to be carried forward for three years, leaving positive impact on brokers and investors.

Various other measures (such as abolition of super tax for non-banking companies, withholding tax for filers on banking transactions) all contributed towards improving the confidence in the equity trading. The negatives for listed equities included continuation of super tax on commercial banks and waiving aside the demand of rationalisation of capital gains tax. It was a relief for investors to see that the much-feared additional measures and hikes in general sales tax and federal excise duty did not materialise.

Market participation saw significant upsurge as average daily volumes jumped by 43pc to 168m shares, while the value traded rose 32pc to $53m. Leaders were Bank of Punjab at 77m shares, K-Electric 57m, Pakistan International Bulk Terminal 56m and TRG Pakistan 44m.

Foreigners turned net buyers and built net fresh positions worth $17m, representing the largest net weekly buying since Apr 13, 2018. Major inflows were witnessed in commercial Banks at $11.4m, exploration and production $1.1m and fertiliser $0.9m. On the domestic front, Brokers were the only net buyers mopping shares worth $2.4m. Major selling was seen by individuals at $7.4m, banks/development finance institutions $3.4m and insurance companies $3.4m.

Commercial banks were the best performers as they added 559 points, followed by oil and gas exploration 133 points, fertilisers 97 points and automobile assemblers 66 points. On the flip side, major sectors under pressure remained oil and gas marketing companies which scrapped 24 points and insurance companies losing 15 points.

Scrip wise main contribution to index upside was attributable to three major banks: Habib Bank, higher by 11.36pc, United Bank 9.95pc and MCB 4.68pc, which together added 454 points. Pakistan Petroleum and Hubco were also among the major gainers.

Going forward, most market gurus expect the rally to continue despite the rollover week for future contracts. The optimism stems from extended buying on the back of positive mini-budget and the rejuvenation of interest by foreign investors. Participants would, however, watch out for further economic decisions to be taken by the government relating to the rationalisation of custom duties, regulatory duties and fate of Gas Infrastructure Development Cess dispute.

Other factors that would influence market performance relate to monetary policy announcement expected by next week, clarity on International Monetary Fund and the financial results to be churned out by some major companies, including Lucky, Fauji Fertiliser, Fauji Fertiliser Bin Qasim, Bank Al Habib and Engro Polymer and Chemicals. Positive earnings and dividends could trigger rally in specific stocks.

Published in Dawn, January 27th, 2019