Pakistan Stock Exchange benchmark index posts 1.46%WoW increase

Pakistan Stock Exchange (PSX) posted somewhat lackluster movement during the week ended on September 22, 2023. It could be attributed to Monetary Policy announcement scheduled in the middle of the week, amidst dual fuel price hikes during the month. However, the decision of the central bank to keep the rates unchanged was a pleasant surprise.

On the external front, country’s foreign exchange reserves remained relatively flat, ending at US$7.69 billion as compared to US$7.64 billion a week ago. Additionally, the domestic currency continued to strengthen against the greenback.

Globally crude oil prices remained on upward trajectory, with Brent ending the week at US$94.03/bbl. This was largely driven by persistent supply cuts by major producers, namely Russia and Saudi Arabia. China’s economic recovery, provided further impetus.

Average daily trading volumes declined by 13.4%WoW, to 139 million shares, from 160 million shares traded during the earlier week.

The benchmark Index gained 6674 points posting a 1.46% increase in the index.

Other major news flows during the week included: 1) Caretaker setup increased prices of petroleum products, 2) foreign office termed report on Pakistani arms sale to Ukraine to secure IMF bailout ‘Baseless and fabricated’, 3) IMF expressed concerns over diesel smuggling from Iran and advised finance ministry to submit detailed report, 4) T-Bill yields tumbled despite the central bank mopping PKR2.4 trillion in the latest auction, and 5) GST evasion through flying invoices estimated around PKR6 trillion.

Transport, Leasing Companies and Close ended Mutual Funds were amongst the top performers, while Vanaspati and allied industries, Insurance and Automobiles were amongst the worst performers.

Major selling was recorded by Insurance (net sell US$1.3 million) and Brokers (net sell US$1.1 million).

Individuals and Other organizations absorbed most of the selling with a net buy of US$2.3 million and US$1.1 million respectively.

Top performing scrips of the week were: PGLC, LOTCHEM, UNITY, SCBPL, and GADT, while top laggards included: MUREB, UPFL, ATHL, PIOC, and MUGHAL.

 

Market is expected to be post gains in the coming week, driven by CPI readings alongside further clarity on IMF's upcoming review.

However, in the near term, appreciating PKR alongside expectations of higher remittances during September 2023 are expected to keep investors optimistic.

Overall, analysts continue to advise a cautious approach while building positions, with investments only focused on dollar-driven and high dividend-yielding companies.

 

 

Prime Minister of Pakistan, Shehbaz Sharif must bid farewell to his idiosyncrasy

Pakistan’s Prime Minister, Shehbaz Sharif is stuck between a rock and a hard place. He has to make certain decisions at his own, because the cabinet has not been put in place. 

Considering his leeway he is likely to make some populist decisions which could further widen the already wide breach between the Government of Pakistan (GoP) and the lender of last resort, International Monetary Fund (IMF).

Since revision of petroleum prices was due on April 15, 2022, Oil and Gas regulatory Authority (OGRA) had recommended a substantial increase in the prices of petroleum products for recovering the full import cost and exchange rate losses from consumers.

According to the estimates of the regulator, the GoP was required to raise petrol prices by Rs21.30 a litre and diesel by above Rs83 a litre in order to recover the full costs. In case it also wants to recover the sales tax and the petroleum development levy on these products, Ogra has proposed a hike of Rs53.30 in petrol and up to Rs120 in diesel prices.

Who would intentionally opt to step on this landmine that PML-N leader Miftah Ismail referred to in his press conference earlier this week? Certainly not a new coalition that, though faced with an enormous economic crisis, has to contend with a formidable political foe. The big question now is: for how long can Prime Minister Shehbaz Sharif delay defusing the landmine, which his predecessor left for him, by freezing petroleum and electricity rates for four months?

He can’t afford to wait for too long, and would need to start deactivating it, even if gradually — unless he wants to allow a bloating budget deficit to spiral out of control by the end of the current financial year.

Thus, the decision to not hike petroleum prices at all is an ill-advised one.

Pakistan is facing a dire economic crisis and populist policies made under political pressure are certainly not going to help anyone in the long run — least of all the people benefiting from them.

At the end of the day, the beneficiaries always end up paying back such subsidies in a harder way through more indirect levies or higher taxes and heavy cuts in public sector spending on essential services, such as education, water supply and healthcare.

The gravity of the looming economic crisis demands that the new government take prudent, forward-looking policy decisions to put the country back on the trajectory of sustainable growth, even it wants to tread cautiously. However, the Shehbaz Sharif government does not have the option of letting things remain as they are or keep delaying tough decisions. If Sharif continues with populist policies for fear of a backlash from the opposition PTI, he would leave the economy in far more dire straits than he inherited.