Average daily trading volume plunges to 51 million shares at Pakistan Stock Exchange

During the week ended 12th July 2019, the benchmark index of Pakistan Stock Exchange (PSX) lost 518 points and closed at 33,672 points, down 1.5%WoW. Trading activity remained immensely dull as average volumes during the week fell to around 51 million shares. It is pertinent to note that the volumes in the outgoing week were lowest in the last 7 years (last reported lowest number was 28 million in January 2012). Investors preferred to remain on sidelines primarily due to uncertainty about the market support fund due to the ceiling imposed by International Monetary Fund (IMF) on the guarantees to be issued by the Government of Pakistan (GoP), coupled with a possible hike in the policy rate in the upcoming Monetary Policy announcement scheduled on 16th July 2019. Increase in fertilizer prices created some positive sentiment for the sector and brought it amongst the top performers, while majority of other sectors remained dreary, in line with the overall sentiment.

The total liquid foreign exchange reserves of Pakistan were reported at US$14,259.3 million on 5th July 2019. The break-up indicated, reserves held by the State Bank of Pakistan (SBP) at US$7,083.6 million and net foreign reserves held by commercial banks at US$7,175.7 million. During the week under review reserves held by SBP decreased by US$189 million to US$7,083.6 million due to payments on account of external debt servicing. On 9th July 2019, SBP received the first tranche from IMF amounting to US$991.4 million, after which SBP’s reserves increased to US$8,035.5 million.

The key news flow during the week included: 1) State Bank of Pakistan (SBP) receiving slightly less than US$ one billion from International Monetary Fund (IMF) as the first tranche of bailout package, 2) IMF also releasing a detailed plan for Pakistan highlighting key benchmarks which included quarterly adjustments of electricity tariff and increase in tax revenue by Rs1.5 trillion in FY21 and Rs1.31 trillion in FY22 among other things, 3) White House confirming that US President Donald Trump will meet Prime Minister Imran Khan at his office on 22nd July and their talks will focus on strengthening bilateral cooperation, and 4) the GoP  and fertilizer industry agreeing on hike in urea prices by Rs110/bag. Key performers of the week included: FFC, APL, CHCC and EFERT, whereas laggards during the week were: DGKC, PSMC, HASCOL and MLCF. Volume leaders at the main board included: MLCF, KEL, LOTCHEM and TRG.

Automobile sector witnessed an erosion of 6% in sales that can be primarily attributed to a news item highlighting HCAR & INDU have decided to cut down their production by 20 to 25 percent owing to subdued demand. According to the latest data about automobile, passenger car sales posted the highest decline in the last 6 years, which also added to the investor’s concerns. Based on NCCPL data, foreigners remained net buyers to US$5.9 million. As against this, Mutual Funds remained net seller of US$5.3 million.

Regulatory actions are likely to keep the investors jittery moving forward. However, the focus will be on Prime Minister’s upcoming visit to the US which, if successful, can provide some impetus to the market. Governor, SBP is scheduled to announce monetary policy for next two months on 16th July 2019. Analysts expect a hike of up to 150bps, which is expected to increase pressure on the already lackluster stock market.

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