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INDEX CUT LOSSES ON SUPPORT FROM LOCAL INSTITUTIONS BUT REMAINS BEARISH
SUMMARY

Due to political uncertainty created by the NAB reference and its development over Sharif family in the week, the stock investors remained in uncertain mode. The volume again declined to the average of 141 million shares from 183 million last week. The foreign investors and individual investors were net seller by $9.77m and $0.41m respectively. However the market was ably supported by local institutions. The Banks were net buyer by $12.53m, Mutual Funds $3.16 m, and Company buyer by $2.58m.

The KSE-100 Index declined to 42,641.75 a drop of 436.63 points or 1% during the week. The market capitalization too declined to Rs8.872 trillion from Rs8.991 trillion last week.

According to Bloomberg the Pakistan Stock Exchange (PSX)has entered the bear market. It means that the Index has dropped20% from its recent high, May 24, 2017, of 52,876. The reasons for such meltdown seem to be many: 1) Political development due to Panama Papers case; 2) Economic data – Forex reserves, imminent currency risk, burgeoning Current Account Deficit; 3) Government inaction — stuck up industry refunds (textile, fertilizers etc), shelving privatization, failing to link OMC margins to CPI.

On Monday the stock market closed its third consecutive bearish session as it dropped by 925 to close at 42,153.38. Cement sector dragged the market by 198 points. The news of a cut I cement prices impacted the market.

Tuesday was the fourth consecutive negative movement of stock and the Index shed 170.22 points to come below 42,000 points and closed at 41.983.16. But there was strong institutional support when Company were net buyer $1.20m, Banks $7.01m and Mutual Funds $1.43m.

Stocks on Wednesday bounced back and gained 927.53 points to close at 42,910.79. The rally at stock exchange was led by oversold cement, automobile and oil stocks with attractive valuations. The stock went to such a low level as it made highly attractive for investors to buy the stocks . According to a local broker, the prices of stock worth gold was available at copper price. Even the individual investor who were net seller for the last two days entered the market and were net buyers by $4.05m.

It was a day of profit-taking on Thursday as the market lost 642.17 points to close at 42.268.62. Although the market crossed 43,000 points during the early hours the momentum was maintained forward and the investors opted to go for profit-taking. Selling pressure in the second half was built on cement and banking sector with D. G. Khan Cement and Allied Bank being the highest losers.

Before the close of the week on Friday, the stock again bounced back. The KSE-100 Index gained 373.13 points to close at 42.641.75. The volume too increased to 177.02 million shares compared to 118.10 million shares of previous day. It was a volatile trading as KSE-100 Index fell 400 points in the first two hours of trading but later on the Index climbed and closed in positive zone.

PARTICIPANTS/ACTIVITY

On average shares of 381 companies were traded. Of these 160 were gainers and 211 were losers and 10 remained unchanged. Foreigners were net seller of $9.77m during the week; companies were net buyer $2.58m, banks were buyer $12.53 m; mutual fund net buyers $3.16m and individuals net buyer $0.41m.

Volume leaders during the week were: Azgard Nine and TRG Pakistan 75m each; Aisha Steel Mills; K-Electric 32m each; Bank of Punjab 22m; Power Cement 14m; Sui Southern Gas 11m; Lotte Chemical and Dost Steels 8m each.

TRIGGERS:
  • Meeting of FM failed to reach a consensus on the exporters’ demand for the continuation of an unconditional cash subsidy of exports in 2017-18 under the premier’s Rs180 billion incentive s package.
  • The trade deficit is $3.37 billion for July up by 71.7 percent.
  • CAD increased 41 percent from $1.45 billion recorded in the preceding month.
  • Government planning to issue $1.0 billion Euro bond.
CONCLUSIONS

Technically resistance of 42,641.75 has been broken by Friday close. Further resistance upward is 42,790 and support downward is 41,757.

RAEES UDDIN KHAN – Research & Development Institute of Securities Management & Research Karachi

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