Pakistan Stock Exchange (PSX) witnessed a turbulent week ended on July 22, 2022, on account of political uncertainties mainly on the back of Punjab elections and massive currency depreciation on the back of oil payments. The index dropped by 1968 points or 4.75%WoW to close at 40,077 points, while activity remained subdued as compared to last week. On the macro front, PkR/US$ depreciation was a shocker, as the domestic currency fell by 8.3% to PKR228 for a US$.
Furthermore, PTI’s victory in the by-election of Punjab caused further uncertainty, prompting international credit raters (Moody’s and Fitch) to downgrade the country’s rating to ‘negative’. Foreign Exchange reserves held by State Bank of Pakistan (SBP) also dipped US$9.3 billion. The market participation remained very dull as the average daily turnover decreased 8%WoW to 177.6 million shares.
On the commodities front, MS and HSD prices were reduced by PKR18.5 and PKR40 during the week, on the back of falling global crude prices (ranging between US$91/bbl to US$102/bbl during the period).
Other major news flows during the week were: 1) Saudi Arabia said no to increasing oil production beyond 13 million bpd, 2) Over US$31 billion record remittances received during last financial year, 3) Pakistan international bond yields surged to 50.6%, 4) IMF wanted assurance on Saudi funding to Pakistan before it disburses loan, 5) FY22 FDI surged 2.6% to US$1.87 billion, 6) Power generation fell in peak demand season, and 7) non-textile exports rose to US$12.5 billion.
Sector-wise, amongst mainboard items, Vanaspati & Allied Industries, close-ended mutual funds and Leasing companies were amongst the top performers.
As against this, Textile Weaving was amongst the worst performers with a decline of 10%WoW for the week. Flow wise, major net selling was recorded by Mutual funds (US$7.76 million) along with Insurance (US$2.2 million). Individuals absorbed most of the selling with net buy of US$5 million.
Stock wise, top performers include: HGFA, SML, HINOON, MUREB and DCR, while top laggards were: SNGP, EPCL, MLCF, CHCC and UNITY.
Market activity is expected to remain slow as investors seek an end to uncertainty on the macro and political front, after staff level agreement has been reached with the IMF. There still seems to be a funding gap for FY23 expenditures.
Until future funding from lenders/partners is ensured, domestic currency is expected to remain volatile, subsequently keeping investor confidence muted.
However, recent slump in commodity prices may be a positive development for country’s external account. Aside from lower inflation, lower oil prices may give the GoP space to begin collecting PDL and sales taxes once more without putting more burden on consumers. Analysts advise market participants to stay cautious.