On Monday, State Bank of Pakistan (SBP) decided to maintain the interest rate at 22%, the decision did not impact the stock market as it was already expected and priced-in.
The talks with the IMF mission on the SBA’s second review concluded on Tuesday with staff-level agreement, resulting in infused positivity into the equity market and international investors as well with appreciation in dollar bonds and Pakistan Stock Exchange benchmark index.
As discussions progressed, prerequisites for the next medium-term programs have surfaced, primarily focusing on broadening the tax base. News has circulated about a new plan to collect taxes from retailers through electricity bills, which has been shared with the IMF.
Additionally, IMF has recommended eliminating GST exemptions on petroleum products and other taxes, whereby, despite a easing weekly inflation, an increase in gas price (as sought by Sui twins) and implementation of 18%GST on POL products pose risks to the inflation outlook.
On the economic front, current account for February 2024 turned positive, with a surplus of US$128 million, bringing 8MFY24 CAD below the US$1.0 billion mark.
With a controlled current account balance, SBP’s reserve position also improved by US$105 million WoW to reach US$8.0 billion as of March 15, 2024.
With the IMF's smooth review, market participation improved by 13%WoW, with the daily traded volume averaging at 323 million shares as compared to 287 million shares a week ago.
Other major news flows during the week included: 1) During first eight months of the current financial year the GoP borrowed US$6.678 billion from multiple sources, 2) FDI dropped over 17% to US$820.6 million during these eight months, 3) IT exports raised by 32% to US$257 million during February, and 4) the Supreme Court ordered NBP National Bank of Pakistan to pay PKR60 billion in pensions to retired employees.
The top performing sectors of the week were Transport, Inv. banks/ securities cos. and Tobacco, while Synthetic & Rayon, Cement, and Refinery were amongst the worst performers.
Major selling was recorded by companies with a net sell of US$9.0 million. Insurance absorbed most of the selling with a net buy of US$24.1 million.
Top performing scrips of the week were: Company-wise, top performers during the week were: NBP, DAWH, PTC, CEPB, and MEBL, while laggards included: NRL, PIOC, CNERGY, HCAR, FCCL.
With the aforementioned tax reforms, price increases, particularly with the imposition of GST on POL products, could pose a risk to the CPI outlook and potential delay in interest rate cuts, resulting in restrained market performance. However, successful implementation of tax reforms would have a positive impact on long-term economic stability.
Additionally, with SBP REER increasing to 102.2 in February 2024, there is a risk of PKR depreciation, especially in case of increased smuggling or imports.
Investors are advised to remain cautious and maintain positions in strong valuation main board stocks, particularly those offering attractive dividend yields.
