Pakistan Stock Exchange returning to business as usual

The week ended on August 18, 2023 witnessed investors’ sentiments swaying in either direction owing to major developments on the political front. The caretaker set up was finally announced with Anwaarul Haq Kakar taking charge as Prime Minister and announcement of portfolios of 24-member cabinet. However, general elections seem to be delayed owing to higher population numbers requiring fresh constituency delimitations.

The first gift of the interim government was hike in fuel prices, said to be in line with global oil price hikes and IMF SBA requiring fiscal discipline. Further, hikes in power tariffs added to an already high inflationary environment, coupled with high interest rates have been hurting industrial output particularly the textile sector, which has been hit with added gas curtailments.

The latest LSMI numbers stand at 114.83 for FY23, indicating a drop of 10.26%YoY. Further, PKR remained under pressure against the US$ with the biggest issue being the spread between interbank and open market rate, at PKR295.78/US$, down 2.46%WoW).

The benchmark index opened the week at 48,424 points, and closing at 48,218 points, down 205 points or 0.43%WoW.

Average daily traded volume was recorded at 175 million shares, as compared to 255 million shares a week ago, down by 31.50%WoW.

The other key news driving the market during the week included: 1) RDA inflows exceeded US$6.5 billion, with accounts crossing 600,000 in number; 2) K-Electric recovering PKR24.5 billion from consumers, through PKR1.52/unit surcharge imposed; 3) Federal Government debt spiked by 21.38%YoY to PKR60.8 trillion in the last month of last financial year; 4) Debt servicing reached PKR5.8 trillion; 5) Pakistan’s total debt, liabilities surged to PKR77 trillion at the end of last financial year; 5) Foreign exchange reserves held by the central bank were up by US$12 million to US$8 billion; 6) SNGPL based AGL and Fatima Fert (Sheikhupura plant) gas supply extended to March 2024 to address urea production shortfalls and 7)PRL dismissed news regarding inability to manage Russian crude oil processing.

Buying was witnessed in Automobile Parts & Accessories, emerging as the top performer recording gains, whilst Woolen saw major selling. Major selling was recorded by Banks/DFI with a net sell of US$3.89 million. Insurance companies absorbed most of the selling with a net buy of US$4.05 million.

Top performing scrips during the week were: SYS, PABC, THALL, JDWS, and AIRLINK, while laggards included LOTCHEM, FCEPL, CNERGY, ENGRO, and BOP.

Volume leaders were: YOUW; OGDC; DGKC; PPP; KHYT.

Analysts anticipate the market to remain on positive trajectory owing to a safe passage towards the caretaker setup. However, due to the IMF’s strict conditions with regards to fiscal discipline and a move towards the general elections, market performance may remain volatile with some cushion coming from bilateral/ multilateral inflow commitments and elevated reserves’ level compared to prior periods.

They continue to reiterate following a cautious approach to stock picking and continue to advocate dollar-denominated revenue stream scrips (Technology and E&P sector) to hedge against currency risk or high dividend yielding scrips.

Pakistan: Growing uncertainty about election

The developments on the weekend have introduced an element of uncertainty by bringing up the prospects of a delay in national elections.

It is believed that Pakistan may find it easier to comply with the ongoing IMF program under a caretaker setup, which is a plus. However, inordinate delays in holding elections may risk timely entry into a successor program which would be a key dampener.

Prime Minister Shehbaz Sharif has proposed to dissolve the National Assembly on August 9, 2023 three days before the government’s term will end. The timing is important as early dissolution allows for elections to be held within ninety days, instead of sixty days if assemblies complete their tenure. The members of the coming caretaker government have yet to be announced.

It has also been decided that elections will be held as per the new census which concluded earlier in the year (Pakistan’s population is now 241.49 million).

The initial reaction by the law minister as well as the Election Commission points towards a potential delay in elections, perhaps by a few months, subject to how quickly new constituency boundaries can be drawn up under the 2023 census. This brings up the prospects of an extended caretaker setup, as continues to be the case in Punjab and Khyber Pakhtunkhwa provinces.

The weekend developments include Imran Khan’s arrest following a lower court ruling in a graft case. Unlike in May, when Khan’s arrest was followed by public uproar, there has barely been any protest this time around.

Although, the ruling is likely to be challenged in higher courts, and may well be overturned, the writing is on the wall - Imran Khan is unlikely to be allowed to participate in elections whenever they do take place, with the next government likely to be led by either the PML-N or the PPP. 

The developments on the weekend have introduced an element of uncertainty by bringing up the prospects of a delay in national elections.

It is believed that Pakistan may find it easier to comply with the ongoing IMF program under a caretaker setup, which is a plus. However, inordinate delays in holding elections may risk timely entry into a successor program which would be a key dampener.

Prime Minister Shehbaz Sharif has proposed to dissolve the National Assembly on August 9, 2023 three days before the government’s term will end. The timing is important as early dissolution allows for elections to be held within ninety days, instead of sixty days if assemblies complete their tenure. The members of the coming caretaker government have yet to be announced.

It has also been decided that elections will be held as per the new census which concluded earlier in the year (Pakistan’s population is now 241.49 million).

The initial reaction by the law minister as well as the Election Commission points towards a potential delay in elections, perhaps by a few months, subject to how quickly new constituency boundaries can be drawn up under the 2023 census. This brings up the prospects of an extended caretaker setup, as continues to be the case in Punjab and Khyber Pakhtunkhwa provinces.

The weekend developments include Imran Khan’s arrest following a lower court ruling in a graft case. Unlike in May, when Khan’s arrest was followed by public uproar, there has barely been any protest this time around.

Although, the ruling is likely to be challenged in higher courts, and may well be overturned, the writing is on the wall - Imran Khan is unlikely to be allowed to participate in elections whenever they do take place, with the next government likely to be led by either the PML-N or the PPP.