Political strains came to the forefront again as the KSE-100 index lost 290 points (-2.43% WoW). Investor interest continued to display a declining trend, with average daily volume coming at 34.4 million shares (-17.2% WoW). The lackluster activity witnessed was amid uncertainty regarding potentially flaring Pak-US relations and weak macro-economic data released which highlights the challenges for the country ahead. In the wake of this, foreign outflows of $ 3.8 million were seen during the week. The political situation has seen gradual deterioration since the start of November and it continues to take its toll as investors stay cautious awaiting some improvement in the overall environment. The IMF has recently released their economic review of Pakistan voicing concerns over a ‘challenging’ outlook that they foresee for Pakistan. This mainly centers upon the widening current account deficit, energy shortfalls, fiscal disciplines of public institutions, and debt servicing capacity. Such a view was reflected in the recently released current account numbers which saw the deficit widen to $ 1.55 billion in 4mFY12 owing to a bulging 54%YoY higher import bill on account of rising oil prices. Accordingly, IMF sees Pakistan’s real GDP growth at 3.5% for FY12 against the projected 4.5%.
Stock Specific Activity
Rising public sector and external borrowing to unprecedented levels brought about similar concerns for power and banking companies respectively. Both sectors witnessed negative performance as confidence on the governments inaction to resolve circular debt diminished further. This comes on the back of the IMF negative projections for Pakistan and forced status quo expectations for the upcoming monetary policy. On the positve, fixation of wheat support price at PKR 1,050 per maund bodes for the agri related stocks, mainly fertilizers, in terms of future offtake.
However, much of this interest was
reflected in positive spreads in the futures market rather than the ready market as investors remain uncertain for holding long positions.
Forward Looking Expectations
In the coming week, fertilizer stocks will remain the forefront as far as activity is concerned given the recent trend of top volume stocks. The fixation of support prices for the upcoming Rabi wheat season is good for boosting farmer income which traditionally has supported fertilizer and auto sales. The action of foreign sellers is also critical; week after week negative flows have been seen due to the fragile political and macro scenario. This also has implications for the upcoming monetary policy. With the SBP making intentions clear of following a looser MPS stance in the last policy review, fiscal leakages and disappointing numbers for public borrowing may not allow the central bank to drop the interest rate again. Analysts expect a status quo because of these risks entailed but the final decision – a tricky one – still remains to be seen.