With higher than expected inflation and heightened political tension, after announcement by opposition parties’ alliance to hold rallies across the country, trading started the week on a negative note, down 2.5% at the close of first session of the week. After remaining jittery in the second session, recovery was finally witnessed during third trading session and the sentiment remained positive till close of the week, on 9th October, last trading day of the week index close at 40,798 points, up 1.8%WoW. Top performers of the outgoing week were: UNITY, KOHC, ILP, KTML and PAEL, whereas laggards included: NATF, SERT, AGIL, KEL and COLG.
Mid-week change in sentiment was backed by stellar cement sales, up 22%YoY for September 2020, reported at 5.2 million tons – the highest ever and consequently cement sector remained in the limelight with a 4.3%WoW increase. Similarly Oil & Gas marketing sector also posted an impressive return of 3.3%WoW backed by expectations of a good result for 1QFY21. Among other major sectors, banking sector’s performance remained muted despite being attractive on valuations after State Bank of Pakistan (SBP) asked banks to close all accounts of ministries and divisions and transfer the balance funds to the federal government’s central account with the SBP. Average daily turnover for week witnessed an increase of 6.6%WoW to 417 million shares.
Major news flow during the week included: 1) Petroleum Division admitting that Economic Coordination Committee (ECC) of the Cabinet has recently increased the gas price for different sectors, 2) Government allowing Ministry of Finance to launch three international bonds to build up foreign currency reserves and 3) Pakistan’s trade deficit widening by 19.49%YoY to US$2.4 billion for September 2020. Foreigners emerged as net sellers with outflow of US$7.5 million, whereas profit taking by individuals (net outflow of US$10.9 million) was absorbed by Banks/DFI (net inflow of US$7.1 million) and insurance (net inflow of US$6.6 million).
With valuations remaining stretched, index is expected to tread sideways in short term where cherry picking may be followed. After a disappointing FY20, sectors like Cement and OMC are expected to witness change of fortunes in 1QFY21, with activity to be concentrated in these sectors. However, main risk on the horizon remains increasing COVID cases, possibly pointing towards second wave. The worsening rift between government and opposition is increasing noise and it is expected to rise further with commencement of country-wide rallies.