KARACHI: The stock market largely maintained a bullish tone in the outgoing week aided by a policy rate status quo and the reaching of a Staff-Level Agreement (SLA) with the International Monetary Fund despite some investor concerns about certain harsh conditions for the release of the last tranche of $1.1bn under the current Stand-By Arrangement (SBA).

AKD Securities Ltd said the outgoing week commenced with the State Bank of Pakistan’s Monetary Policy Committee meeting on Monday, where the central bank maintained its policy rate at 22 per cent for the sixth consecutive review, though the decision did not impact the market as it was already expected and priced-in.

Furthermore, talks with the IMF mission on the SBA’s final review concluded on Tuesday with an SLA, resulting in infused positivity into the equity market and international investors as well as appreciation in dollar bonds hitting a two-year high and the benchmark KSE 100-share index staging a robust rally.

As discussions progressed, prerequisites for the next medium-term programmes have surfaced, primarily focusing on broadening the tax base. News has circulated about a new plan to collect taxes from retailers through electricity bills, which has been shared with the IMF.

Additionally, IMF has recommended eliminating general sales tax exemptions on petroleum products and other taxes, whereby, despite easing weekly inflation, an increase in gas price (as sought by Sui companies) and implementation of 18pc GST on POL products pose risks to the inflation outlook.

On the economic front, the current account for February turned positive, with a surplus of $128m, narrowing the current account deficit to just below the $1bn mark in 8MFY24. With a controlled current account balance, SBP’s reserves position also increased by $105m reaching $8.0bn during the week ended on March 15.

With the IMF’s smooth review, market participation improved by 13pc WoW, with the daily traded volume averaging at 323m shares compared to 287m shares in the previous week.

Arif Habib Ltd said the stock market remained mixed since the investors maintained a careful stance in the outgoing week.

On the other hand, foreign direct investment (FDI) declined by 17pc year-on-year in the 8MFY24, arriving at $821m. The rupee closed at Rs278.14 against the greenback, strengthened by Rs0.60 or 0.22pc week-on-week.

As a result, the market closed at 65,152 points after adding 335 points or 0.52pc week-on-week.

Sector-wise positive contributions came from fertiliser (475 points), commercial banks (309 points), paper & board (34 points), automobile assemblers (29 points) and tobacco (21 points).

Meanwhile, the sectors which negatively contributed were cement (244 points), oil & gas exploration companies (156 points), technology & communication (40 points), refinery (30 points) and food & personal care products (24 points).

Scrip-wise positive contributors were Dawood Hercules (212 points), Meezan Bank Ltd (172 points), Fauji Fertiliser Company (164 points), National Bank of Pakistan (105 points) and MCB Bank (77 points). Meanwhile, scrip-wise negative contributions came from Pakistan Petroleum Ltd (117 points), Oil and Gas Development Company Ltd (115 points), Habib Bank Ltd (84 points), Systems Ltd (77 points) and Lucky Cement (76 points).

Foreign buying continued during the outgoing week, clocking in at $2.0m compared to a net buy of $2.7m last week. Major buying was witnessed in commercial banks ($0.8m) and exploration & production ($0.6m). On the local front, selling was reported by companies ($9.0m) followed by banks/DFIs ($5.0m).

AKD Securities Ltd noted that with the aforementioned tax reforms, price increases, particularly with the imposition of GST on POL products, could pose a risk to the CPI-based inflation outlook and potential delay in interest rate cuts, resulting in restrained market performance.

However, successful implementation of tax reforms would have a positive impact on long-term economic stability.

Additionally, with the SBP’s real effective exchange rate increasing to 102.2 in February, there is a risk of currency devaluation, especially in case of increased smuggling or imports.

It advises investors to remain cautious and maintain positions in strong valuation main board stocks, particularly those offering attractive dividend yields.

Published in Dawn, March 24th, 2024