Pakistan: IMF hopes keep stock market alive

With a controlled hike in the policy rate, along with some positive news flow regarding the start of negotiations between the GoP and the IMF, the market witnessed a rally of 2,400 points from Tuesday to Thursday.

This culminated to the KSE-100 index gaining 5.3%WoW to close at 40,451 points for the week ended on January 27, 2023. As a results average daily trading volume spiked significantly by 76.2%WoW, to 252 million shares.

During the week, the GoP decided to let go of the artificially controlled interbank exchange rate, with PKR subsequently plunging downwards from a US$/PKR parity of 230 to 263, losing 12.5%WoW.

Major news flows during the week were: 1) foreign exchange reserves held by State Bank of Pakistan (SBP) dropped to US$3.7 billion due to external debt repayments, 2) general elections likely to be held in October this year, 3) country to repay US$3 billion debt over the next five months, 4) banks told to give one-time facilitation to importers for release on consignments, 5) currency dealers removed cap on US$-PKR exchange rate, 5) PKR300 billion taxation measures through mini-budget on the way, and lastly 6) IMF team to arrive Pakistan on January 31, 2023.

The top performing sectors were: Miscellaneous, Refinery, E&Ps, Vanaspati & Allied, and Cement, while the least favorite sectors were: REITs, Pharmaceuticals, Textile Weaving, Woolen, and Automobile parts & accessories.

The top performing scrips were: KTML, HBL, SML, KOHC, and CHCC, while laggards were: HINOON, THALL, INDU, ABOT, and SYS.

Flow-wise, Insurance Companies topped the net sellers, offloading US$8.8 million followed by Companies (US$3.9 million), Mutual funds (US$3.7 million) and NBFC (US$0.0 million).

On the buying side Banks emerged top buyers with US$5.0 million, followed by Individuals (US$4.1 million), Brokers (US$3.8 million), Foreigners (US$2.8 million) and Other Organizations (US$0.7 million).

Incoming news regarding developments on the IMF front is bound to invoke a short-term rally, although the longer the agreement takes the more uncertainty will creep back in, keeping investors away.

The PKR eroded value significantly after it was left to market forces, depreciating to PKR263/US$, while country’s foreign exchange reserves dropped to alarming levels (an import cover of merely 3 weeks). Inflation is expected to remain persistent.