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IMF deal leads turmoil in market as KSE-100 index loses 4.5pc wow
Summary

Nation was informed on last Sunday by advisor to PM on Finance Dr. Abdul Hafeez Shaikh that a staff-level agreement has been reached with IMF on a 39-month Extended Fund Facility (EFF) program of $6 billion.

This was a news of joy as well as concern to investors. The investors were happy over removal of uncertainty over IMF loan. They were concerned for applicability of IMF conditions attached to the loan particularly the market determination of exchange rate and the SBP discount rate policy. This led to jitteriness and fluctuation in the stock market.

The rupee inter-bank rate against dollar went to Rs.141.40 on Monday to Rs.149 on Friday. In open market it climbed from 143.50 to 149.50. On Thursday SBP released the notification of Monetary Policy announcement on May 20 –earlier than scheduled. Market is expecting a hike in policy rate by 50-100 basis points to curb the aggregate demand and ensure macroeconomic stability.

During the week, the market shed 1,550 points to close at three years lowest level of 33,166.62. The market capitalization deteriorated to by 315 billion to Rs.6.811 trillion. The market volume improved to 107 million shares.

The stock market started in positive note on Monday on IMF deal and climbed at one time to 35,228.09 from last Friday close of 34,716.53, a jump of 511 points but during the close the Index settled at 33,900.38 a loss of 816.15 points. The volume too increased to 121 million shares. The foreigners were net buyers worth $6.93 million. It was almost balanced with Mutual Fund seller worth $5.53 million.

On Tuesday the market remained flat with decline of Index by 15 points and closed at 33,885.09. There was limited impact on positive news of Pakistan successfully retaining its emerging market status in MSCI’s May Review and the government approval of Tax Amnesty Scheme.

The market gained 406.56 points to close at 34,291.65 on Wednesday. The major E&P stocks Pakistan Petroleum Ltd and Pakistan Oilfields closed at their upper circuit. The rise in international oil prices and the news of completion of offshore drilling at Kekra-I project brought positivity in the market.

The market on Thursday and Friday ware spooked by exchange rate fluctuation as the dollar recoded hefty gains against the rupee in open market. Prime Minister on Wednesday chaired a meeting with Exchange Currency Association of Pakistan and decided that action would be taken against any exchange company that sells dollars at higher than market rates. On the day close market shed 320.53 points to close at 33,971.12. Moreover on Friday the market lost 804.50 points to close at 33,166.62.

 

Participants/Activity

On average shares of 322 companies were traded. Of these 85 were gainers and 223 were losers and 14 remained unchanged.

Foreigners were net buyer $8.21m during the week; companies were buyer by $7.37m; Banks were buyer $2.23m; Mutual fund net seller $19.1m and individuals net buyers$3.96m.

Volume leaders during the week were: K-Electric 56m; PIBTL 25m; Unity Foods 24m; Maple Leaf Cement 21m; Bank of Punjab 20m; TRG Pak Ltd 11m; OGDCL XD 6m; Lotte Chemical 5m; Pakistan Stock Exchange 4m and HUBCR 3m.

Triggers
  • Despite currency devaluation and subsidies offered to various sectors, the country’s export declined by 1.54 percent during April, according to latest data released by Pakistan Bureau of Statistics.
  • Pakistan retains its place in MSCI EM Index dispelling the long held market concern that the country could be downgraded to Frontier Market (FM).
  • Dollar records hefty gains against rupee in open market. Currency depreciation was already on the cards in IMF program-SBP Governor.
  • Tax amnesty scheme announced by the Government. Asset Declaration Scheme 2019 was approved.
  • The Monetary Policy Committee of SBP will meet on Monday, May 20, 2019 to take decision on policy rate.
Conclusion

Since IMF deal is finalized the market shall move in the manner the deal is implemented. The Monetary Policy on Monday has to be watched while the stocks are at a very attractive valuation.

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