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Sudden & sharp depreciation of rupee push index above 45,000 points
Summary

In the open market dollar was selling Rs.111.80 on Monday. The rate suddenly jumped to around Rs.115.50 on Tuesday. The rise depict almost 4% rupee depreciation against the US dollar created weak-rupee euphoria in the market. The change of rupee-dollar parity led investors to speculate more as to how low the rupee could go, interest rate hike in upcoming monetary policy and the statement of Advisor to Prime Minister Miftah Ismail “current devaluation is good thing”. The pick-up in exports and a slowdown in the rate of growth of imports in February are positive trends.

The market remained bullish on all shorter four days week. The market crossed 45,000 mark to close at 45,030.22, a gain 3.8% growth in the index for the current week. The average volume during the week too advanced to 193m shares compared to 175m last week and market capitalization increased to Rs.9,261 trillion.

On Monday, the market shrugged off the last Friday negativity in the market of 131.86 points and opened on positive note. Perhaps it could be a fruitful and positive meeting of Pakistan Stock Exchange delegation with Dr. Miftah Ismail on Sunday. The volume during the days declined to 116m while Index gained 176.39 points to close at 43,539.60.

Stock rallied 770 points on Tuesday after steep rupee fall. It was the second such intervention by SBP in three months, which points to the fact that government believed that devaluation would provide some cover to the worsening balance of payment position. The trading volume surged by 90% to 220m. Investors anticipated a rise in policy rate in response to weak rupee. The market added 770 points to close at 44,309.74 points.

Weak-rupee euphoria persisted on Wednesday and Index further gained 336.21 points to close at 44,645.95. The banking sector and oil sector shares were gainers in the market. Fertilizer too closed positive over news flow pertaining to new fertilizer policy. The banking sector added 274 points to the index.

On Thursday, the foreign investors were the leading buyers with net inflow of $9.76m as the devaluation has renewed foreign fund managers’ interest in stocks. The market gained 384.27m to close at45,030.22.

 

Participants/Activity

On average shares of 381 companies were traded. Of these 199 were gainers and 164 were losers and 18 remained unchanged.

Foreigners were net buyers of $0.15m during the week; companies were seller by $0.17m, banks were seller $2.65m; mutual fund net buyer $12.14m and individuals net seller $17.2m.

Volume leaders during the week were: Lottee Chemical 64 m; TRG Pak Ltd.54m; Nimir Resin 42m; Unity Foods 21m; Fauji Foods Ltd 17m; Sui Southern Gas 13m; Aisha Steel & Azgard Nine 10m each and Faysal Bank 4m.

Triggers
  • The depreciation of rupee on Tuesday by around 4 %
  • Advisers being rehired for PIA sell-off
  • Power consumers to get Rs.2.20 per unit relief for Feb.
  • News of potential tax relief.
  • Unchanged sovereign credit policy by Mood off set negative news
Conclusions

The Budget exercise has commenced and all the principal accounting officers have been directed to submit their budget documents by the end this month. Economic survey 2018 would be out on April 26, followed by budget announcement on April 27 and a post-budget presser on April 28.

 

Raees Uddin Khan,
Research & Development, Institute of Securities Management Research & Training (Pvt) Ltd, Karachi.
Dated: March 23, 2018

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