KARACHI: Despite the hike in discount rate, the benchmark index underwent a massive surge during the week as it gained over 261 points. The average volume was 165 million, significantly greater than the average daily volume for the current year.
The KSE-100 ended Friday at 11,407 level, gaining a weekly 2.3 percent to close at the highest level since July 10, 2008. Average daily volumes rose by 150 million, showing a weekly boost of 27 percent. The index ascent was inexorable as it seemed that the participating investors had already factored in the discount rate hike before making investment decisions.
In addition, inflationary pressure is expected to mount in the upcoming months, especially November, primarily due to the increase in prices of energy, oil and perishable food items. Balance of payments and trade balance provided much needed support to economic indicators, but sustainability still remained uncertain.
Oil prices were expected to undergo an upward revision from the onset of the current month general however, prices stayed stagnant. It was a technical move by the petroleum ministry to exclude incidental charges from ex-refinery prices. In addition, reduction in the OMC and dealer margin was also a tactic to keep retail prices unchanged.
Index performance was dominated by gainers as the 67 index weighted companies posted gains while 30 companies slipped downwards. Oil sector stocks seemed out of color as oil companies posted a meager gain in the range of 0.10 percent to 3.75 percent. POL outpaced its peers, while OGDC and PSO posted a gain of one percent.
The banking sector registered strong gains, as HBL raced upwards by 8.8 percent followed by a rise of 6.4 percent by UBL. NBP stepped ahead with 4.4 percent, while rest of the second tier stocks moved with the wind. Fertiliser stocks also stimulated in line with the index while FFBL defeated each of its peers.
The week kicked off with announcement of a third consecutive 50bps rise in discount rate, which didn’t force investors to react negatively. This was evident from the boost in volumes from 90 million shares on Monday (29 Nov) to 165 million shares traded on Tuesday. The T-bill yields in the auction held on Wednesday also exhibited gains.
The T-bill auction was held during the week where SBP raised a realised amount worth Rs 126 billion including NCB against the target of Rs 110 billion. It was the first auction since the rise in policy rate by central bank earlier in the week. Subsequently, treasury yields in the primary market jumped sharply striking the highest in 9M paper by 37bps to 13.67 percent followed by 3M and 6M paper to the tune of 31bps and 19bps to 13.16 percent and 13.39 percent respectively.
Persistent rise in government borrowing for budgetary support and commodity operation, albeit seasonal has spiked up the NDA of the banking channel. Consequently money supply has notched up by 4.83 percent. Benchmark interest rate of 6M KIBOR jacked up 67bps to a mid quote of 13.47 percent since the start of last quarter on account of continual monetary tightening.
It appreciated by 0.5 percent during the same period. Market yields are plausible to move further north before retraction due to tightening monetary stance and heavy financing requirement of the government, said Salman Vidhani at HMFS research.
