Pakistan Stock Exchange witnessed mostly an all green week ending on October 07, 2022 after a long break, closing at 42,085 points, up 2.33%WoW. Shrinking trade deficit and appreciating currency improved overall investor sentiment. Further, rumors about rate-cuts in the upcoming monetary policy meeting on October 10, 2022 loomed large.
Trade deficit was reported at US$2.9 billion at end September 2022 and US$9.2 billion for 1QFY23, down 20%MoM/21%YoY. Also, the new finance minister’s stance made his unfriendly stance clear for financial institutions involved in foreign exchange market volatility and speculation, instilling confidence into markets. Overall, the rupee appreciated by 3.9% during the week, end at PKR219.9/US$.
On the inflation front, CPI for the month clocked in at 23.2%YoY, a significant decline from previous month’s 27.3%YoY, mainly due to the falling electricity charges (August 2022 FCA was refunded for consumers using 300units or less). The GoP also slashed the prices of petrol by PKR12.6 and PKR12.13 for HSD, mainly due to reduced Petroleum Development Levy (PDL).
The government has announced a power subsidy for five export-oriented sectors, providing electricity at PKR19.99 per unit (all inclusive), the subsidy is estimated to cost the national exchequer PKR100 billion. Thursday night delivered the most negative news for the week as Moody’s downgraded the country’s long-term foreign debt rating to Caa1 from B3. Ministry of finance heavily contested the decision and has been in talks with the credit rating agency.
On the commodities front, Oil ended the week with its biggest weekly gain since early March as OPEC Plus put the market on course for further tightening ahead of winter, WTI futures traded near US$89/barrel, up 11%WoW.
Other major news flows during the week included: 1) The UN revised up its humanitarian appeal for Pakistan five-fold to US$816 million from previous US$160 million, 2) The US reportedly showed willingness to allow trade of Russian oil at discounted rates, 3) The Lahore High Court (LHC) on Thursday conditionally suspended up to 10% super tax for companies, 4) Aisha Ghaus Pasha has informed the National Assembly that the GoP has not violated the IMF agreements by not increasing PDL on October 01, 2022 and 5) the GoP to convince PM Shehbaz Sharif to approve a long demanded hike in tariff for both cash-strapped gas utilities of the country.
Sector-wise, amongst mainboards, Technology & Communication, Sugar and Close-end Mutual Funds were amongst the top performers, up 8.9%/7.0%/6.6%WoW respectively. As against this, Jute, Miscellaneous and Vanaspati & Allied were amongst the worst performers with declines of 16.7%/4.8%/3.9%WoW.
Flow wise, major net selling was recorded by Insurance (US$5.73 million) and Banks/DFIs (US$4.4 million). Individuals absorbed most of the selling with net buy of US6.72 million.
Stock wise, top performers included: HUBC, FCEPL, TRG, SYS, HGFA, while top laggards were: PGLC, PSEL, SML, MUREB and PSMC.
Near term trajectory of the market may depend on the monetary policy announcement scheduled for Monday. Inflation at this point seems to have peaked during last few months, and may begin its downward move by the end of this quarter, although FX reserve position still remains alarming, dropping as low as US$7.9 billion. Until foreign exchange reserves come toward a more secure position, the PKR is expected to remain volatile in the near-term. Having said that, upcoming winter season may cause us to revise our inflation outlook as fears of further imported inflation loom large. However, recent slump in trade deficit due to falling commodities may be a positive development for country’s external account. Overall, macros remain shaky, analysts recommend to the market participants to stay cautious and focus on defensive plays.