Maintain caution
The inflation FMO June is likely to be recorded at 3.5pc, slightly up from May which saw the figure tick in at 3.2pc
Trading activity at the Pakistan Stock Exchange remained range bound during the past week with the index gaining a meager 394 points week-on-week to close at 37,783 points. Trading volumes slipped during the week, dropping by almost 8pc in comparison to the week ended Jun24. Investors generally remained cautious during the last trading week of FY16, primarily due to the uncertainty spurred by BREXIT and the subsequent meltdown in global markets.
The bourse opened negatively on Monday, testing the 36,950 mark before closing slightly above the psychological mark of 37,000 points at 37,039, losing 350 points. Selling pressure continued from foreigners who emerged as net sellers of around $4 million. This momentum carried on into the next session which ended flat with a paltry gain of 37 points to close at 37,076 points. Foreigners once again emerged as net sellers of $3.5 million. The significance of this session was the double bottom formation which emerged when the index tested 36,850, rebounding thereafter and giving a solid formation for a positive move.
Wednesday’s session opened muscularly and the momentum remained positive throughout, helping the benchmark index gain 710 points amid low volumes to close at 37,786. According to a leading brokerage firm’s research desk, news that cement companies have increased prices by Rs35/bag to pass on increase in the Federal Excise Duty (FED) mechanism from 5pc of MRP to Rs1/kg in the recent budget announcement proved to be the catalyst of this rally. DG Khan Cement, Pioneer Cement and Lucky Cement led the list of gainers. Moreover, a positive move in international markets also played an anchor role in the market’s momentum, as expectations of a negative economic impact subsided post-BREXIT.
However, I had mentioned last week that “a counter positive move in the next week, after a major single day fall, should not come as a surprise, but should only be considered a technical positive correction and an opportunity to book positions.” The last session of the week ended flat, losing just three points as only 115 million shares exchanged hands. This was the lowest turnover of the week. While foreigners emerged as net buyers of $3.5 million, Thursday’s session saw local investors take advantage of the hike and book positions. Banking Institutions led the list of sellers with a net sale in excess of USD 10 million.
The bourse will open for just Monday’s session before closing down till July 10 for Eid. Investors are advised to maintain their cautious stance, selling on strength to reduce exposure.
Foreign exchange reserves at historic levels
Foreign of Pakistan have risen to $21.7 billion, illuminating the future outlook of the country. A continuation of this trend is likely to attract foreign investment, especially with the law and order situation becoming slightly better.
June inflation likely to clock in at 3.5pc
The inflation FMO June is likely to be recorded at 3.5pc, slightly up from May which saw the figure tick in at 3.2pc. However, this slight increase may be apportioned to a rise in overall demand because of the month of Ramazan and should not have any significant impact on the market. Depreciation in the PKR-USD exchange rate, nonetheless, cannot be ruled out and will put upward pressure on CPI during the new fiscal year.
Pak economy maintained its growth momentum during FY16: SBP
According to the third quarterly report issued by the State Bank on Friday, Pakistan’s economy maintained its growth momentum during FY16, despite suffering from heavy losses in the agriculture sector.
The report particularly highlighted the acceleration in industrial and services sectors’ growth on the back of better energy supply and improvement in security situation in the country.
Other key macro-economic indicators also improved during FY16, the report noted. For example, average CPI inflation was almost half the level seen last year. This was possible primarily due to a reduction in petroleum prices and a relatively stable exchange rate.
This report should come in positively for investors as it painted a positive sketch of the economy – which has experienced growth due to a consistent expansionary monetary policy.
Provincial budget encompasses all sectors of economy: Finance Minister Punjab
Dr Ayesha Ghaus Pasha, praising the efforts of the chief minister, reiterated that exemplary measures had been announced in the provincial budget for prosperity of farmers and millions of farmers would benefit from subsidy of billions of rupees on fertilisers, agriculture implements, seeds and tube wells.
If this turns out well, the fertiliser sector might experience a rally in the near future. However, a lot of exogenous factors need to be looked after to make this true, the gas and electricity issues to name a few.
