Shares reverse morning gains after weakening rupee dampens sentiment; KSE-100 closes flat

Published
9
Speaking to Dawn.com on today's situation, Ali Asghar Poonawala, Deputy Head of Research at AKD Securities, said the market was "posting a relief rally". – AFP/File Photo
Speaking to Dawn.com on today's situation, Ali Asghar Poonawala, Deputy Head of Research at AKD Securities, said the market was "posting a relief rally". – AFP/File Photo

Shares at the Pakistan Stock Exchange changed course after days of carnage, or so it seemed in the first two hours of trading after the government's recent policy measures – which include a Rs1.2 trillion stimulus package and a slashed policy rate – gave investors some much needed relief and hope after the virus outbreak has slowed down economic activity in the country.

The benchmark index opened at 27,228 and kept a largely upward trajectory till around noon, when it peaked for the day at 28,191 – a rally of 941 points or 3.45pc at 11:50am.

But much of the optimism that had caused the rally evaporated as the rupee continued its descent against the United States dollar, signalling rising foreign money outflows from the country.

Since approaching its peak, the KSE-100 index shed all its gains, closing largely flat at 27,267 points – up 38pts or 0.14pc.

Courtesy PSX data portal
Courtesy PSX data portal

Speaking to Dawn.com on today's situation, Ali Asghar Poonawala, Deputy Head of Research at AKD Securities, said the market had "posted a relief rally" in the morning.

"Value seekers seemed to have found solace in a stream of policy measures in favour of market participants, where raising of debt financing limits and reduced tax measures were seen to improve liquidity," he said.

Additionally, Poonawala said broad-based sectoral performance including Banks, Foods, Cements and Power sectors indicate investors were swaying towards equity exposures after the State Bank's recent cut in benchmark rates reduced required returns.

"Investors await clarity on leniency in banking sector arrangements where initial reports indicate that Banks/DFIs could be allowed to extend some relief in markup payments and debt restructuring," Poonawala said, adding that reclassification of margins on lending may dampen the blow to incomes in the real economy from the ongoing coronavirus pandemic.

But a weakening rupee led to a risk-off sentiment, according to Poonawala, prompting investors to book minor gains amidst an uncertain demand backdrop.

Experts say the major reason behind the rupee's fall was the rate cut announced by the central bank. A high interest rate supports the rupee by encouraging hot money inflows into treasury bills.

But the pandemic has forced the central bank to slash the interest rate from 13.25pc to 11pc over two monetary policy meetings within just seven days. Bankers said the fall in interest rate weakened foreigners’ urge to invest in treasury bills while a further cut in the key rate is possible due to an economic slowdown in the country.

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