This is the second week running that this column correctly projected market movement
Major volumes are likely to come in third tier stocks while blue chip stocks will remain dull with higher CPI numbers restraining investors to make fresh investments
The momentum gained by the market on Friday, July 29 followed in on this week’s opening session to register a gain of 271 points and close at yet another record high of 39,800 index points on the benchmark KSE-100 index. The subsequent sessions of the week ended in negative zone, pushing the index down to the level on 39,330 on the last trading session before closing on 39,390 points – losing 139 points week-on-week.
Volumes spiked up week-on-week by 20pc, averaging 219m on a daily basis during the week. Foreign investors showed strained activity, ending the week with a net outflow of $3.9m. The retail investors emerged as net buyers of $7.4m during the week, probably anticipating an upward spike during the next week.
This is the second week running that this column correctly projected the market movement. The column highlighted last week that the Bulls will target the 39,800–39,995 range with a strong support region defined between 39,150 and 39,250.
In this next week, markets are expected to remain dull on volumes with more volatility. Major support is defined between the 39,100 – 39,200 mark and resistance is likely to be strong between 39,650 – 39,750 points. Overcoming the resistance and closing above 39,800 points is likely to instigate a new bull run which might see the benchmark index cross the long-awaited 40,000 mark. However, breaching the support level will push the index further down towards 38,000 points – providing a much needed breathing space for the index which seems heavy at this level.
Hassan Mehmood, a seasoned market technician opined, “Major volumes are likely to come in third tier stocks while blue chip stocks will remain dull with higher CPI numbers restraining investors to make fresh investments.” He continued, “The market needs a 3-4pc correction at this level and as long as it continues to trade above 38,000 points, it looks good.”
Central bank keeps policy rate on hold at 5.75pc
“The Monetary Policy Committee, after detailed deliberations, has decided to maintain the policy rate at 5.75 percent (for August-September period),” Ashraf Wathra, Governor State Bank of Pakistan (SBP) told a news conference.
The discount rate is currently at historically low levels, being reduced 4.25pc from its October 2014 level of 10pc. Economic activity, as a result of this, is on the rise and the governor explicitly stated that it may result in higher inflation levels in the subsequent terms.
Food prices inspire CPI to rise more than expected in July
The consumer price index (CPI) inflation rose to 4.1 percent in July, the Pakistan Bureau of Statistics (PBS) data showed on Monday. The CPI inflation clocked in at 3.2 percent year-on-year in June and 1.9 percent in July 2015. Annual inflation hit a 13-year low of 2.86 percent during the last fiscal year of 2015/16.
The central bank forecast the inflation rate in the range of 4.5 and 5.5 percent for the current fiscal year.
It is pertinent to mention that this rise is principally moved by a general price increase in perishable food items and an expectation of poor agricultural crop is likely to keep prices under pressure.
Movements in international oil prices are also likely to decide the future direction of CPI numbers. If oil prices remain depressed, it is likely that CPI numbers emerge on the lower side as compared to a surge in the same, which might see the inflation numbers creep up to 5pc.
Cement sales likely to fall in July as construction slowdown
Slow construction activities coupled with Eid festivities are likely to hamper cement sales in the first month of the new fiscal year. They are likely to dip 4pc to 2.2m tons. Monsoon is in full swing in Punjab and sales are likely to remain suppressed until the end of this season.
This column had previously highlighted that presence of Iranian cement in Afghanistan and lower dispatches to African countries have reduced the demand for Pakistan cement in international markets and a price rise of Rs35 per bag after the budget is not helping the cause.
Analysts believe that CPEC will make up for the lost exports but it is pertinent to mention that Pakistan’s per capita consumption of cement at 140kgs is lowest in the world as compared to the world average of 400kgs.
Fecto Cement issued US$4m fine for ‘illegal’ mining
The Capital Development Authority (CDA) has cancelled the mining lease for Fescto Cement and issued a fine against it of US$4m for illegally operating in the Margalla Hills National Park near Islamabad. The CDA has also requested that the local explosives inspector ask the cement producer to remove explosives dumped in the park area and it has asked police to take action.
A report by the CDA says that the cement producer’s 30 year lease was extended for another 18 years by the director of the Industries and Mineral Development department of the Islamabad Capital Territory in June 2012. However, a forestry director raised objections to the extension.
