Positive macros help stocks close the week higher

KARACHI: The stock market’s impressive rally in the outgoing week saw the KSE-100 index gain 501 points (1.5 per cent) and settle at 33,939. It started on a positive tone but the trend turned negative mid-week on fall in international oil prices and the sinking global markets amid fears of a second coronavirus wave.

The market received support on the last trading day as the State Bank of Pakistan slashed interest rate by 100 basis points to 7pc in an unscheduled Monetary Policy Committee meeting, based on expected lower inflation for June and to support growth.

Participants listed positive factors during the outgoing week which included current account surplus of $13 million for May owing to decline in imports; the monetary aid received from the Asian Development Bank and World Bank in the sum of $1bn for bringing about improvement in health system to fight Covid-19 and the extension in Financial Action Task Force’s deadline that eased investors’ mind of any imminent danger.

Moreover, foreign direct investment surged 91pc year-on-year to $2.4bn in Jul-May’20 while the World Bank announced $2.7bn debt suspension under Debt Service Suspension Initiative.

According to Arif Habib Ltd, sector-wise positive contributions came from fertiliser, higher by 326 points, cement 108 points, power generation and distribution 46 points, oil and gas marketing companies 34 points and auto assemblers 31 points. On the flipside, drag came from commercial banks, decreasing by 90 points, tobacco 13 points and pharmaceuticals 8 points.

Scrip-wise, the index received major boost from Fauji Fertiliser, up 101 points, Engro Corporation 95 points, Dawood Hercules 78 points, Engro Fertiliser 47 points and Hub Power 44 points.

Going forward, gurus visualise the market to remain in the positive trajectory in hopes of further opening up of the business and industrial activity as Covid-19 cases have started to decline in Pakistan on day-on-day basis. With inflow of funds from ADB and World Bank, rupee/dollar parity is expected to stabilise in the upcoming week.

The reduction in policy rate could help investors cherry-pick scrips from cement, OMCs and fertiliser sector. Some other strategists thought the market behaviour was difficult to predict but any correction could be an opportunity to accumulate dividend-yielding stocks and selected blue chips on all major counters.