Pakistan Market: March Review and Outlook

KSENegativity witnessed seen in February continued in March as well. Pakistan market overlooked two key macro-economic developments: 1) the central bank reducing policy rate by 50bps to 8 percent and 2) Moody’s revising its outlook on Pakistan’s foreign currency debt.
The benchmark KSE-100 Index recorded negative return of slightly more than 10 percent in March, taking CY15TD returns to slightly less than negative 6 percent. The KSE-100 Index erosion could have been much worse had there been not a sharp recovery of 1,307 points or 4.52 percent on last day of the month.
Market’s performance in March is not only the worst in last 58 months but it also marks the second consecutive month where the KSE-100 Index has yielded negative returns, last seen at the end of 2011. Going forward, with the current round of negativity subsiding, it is believed that the prevailing disconnect between the market performance and improving macros will ease out, providing impetus to P/E re-rating theme. Analysts remain bullish on the market over the medium term with our December’15 Index target of 37,000 points. .
The KSE-100 Index saw its market capitalization going southwards by US$8.4 billion during March as negativity brought on by US$71.4 million (US$133 million CY15TD) worth of foreign selling infused panic onto domestic investors. While Mutual funds sold equities amounting to US$56 million during the month under review, banks remained key buyers with net US$73 million inflow.
During March foreigners’ gross buy averaged at US$9.9 million/trading session which compares unfavorably against US$11.1 million/trading session in February this year. However, with the ease in selling pressure this figure is likely to bolster going forward. Market witnessed daily average traded volume declining by 33% to 162.2 million shares against 241 million shares in February, with daily average traded value for the period under consideration was reported at US$85.4 million from US$137.7 million in the previous month, down 38 percent.
The negativity brought on by swift selling by foreigners and mutual funds was such that amongst 32 listed sectors on the KSE, all barring one recorded negative returns. In addition to this, all 10 major sectors representing 88 percent of KSE’s market capitalization closed the month in red. Within these mainboard sectors, despite yielding negative returns Tobacco, Food Producers, Autos and Chemicals outpaced the market. Conversely, Pharma, Banks and Textiles remained top losers.
With some respite in the present round of negativity, analysts at ADK securities see the existing disconnect between the KSE-100 Index’s price performance and macro-economic improvement to ease out going forward, as acute foreign selling supposedly reaches its conclusion. Discount rate cut and Moody’s outlook revision further affirm P/E rerating theme and remain bullish on the market over the medium term.

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