Pakistan equities fall 0.3% over weak corporate earnings

Pakistan’s stock market fell by 0.3% last week as volatility gripped the market due to weaker-than-expected corporate earnings.

The benchmark KSE-100 Index fell 502 points week-on-week, to close at 163,304.13 points.

Market participation also declined, with average daily traded volume slipping 17% from the previous week to 1.8 billion shares, compared with 2.2 billion shares a week earlier.

The market closed in the red despite multiple positive indicators at the macroeconomic front. Pakistan posted a “surprising” current account surplus of $110 million in September. Information technology exports for the month rose 25% year-on-year to $366 million, marking the country’s highest-ever monthly IT export figure.

Power generation in September stood at 12,592 gigawatt-hours, up 1% from a year earlier, while generation costs declined 24% year-on-year. Meanwhile, the State Bank of Pakistan’s foreign exchange reserves rose $14 million week-on-week to $14.5 billion as of Oct. 17.

The Pakistani rupee appreciated 0.03% against the US dollar during the week, closing at PKR 281 in the interbank market.

Mixed sentiments

The KSE-100 index traded largely range-bound throughout the week, reflecting mixed investor sentiment. The market opened on a positive note, supported by easing tensions with Afghanistan and encouraging economic indicators, particularly the current account surplus.

However, optimism faded as investors turned to profit-taking later in the week, resulting in a modest weekly decline.

According to an analyst from Arif Habib Ltd., the Monetary Policy Committee is scheduled to meet on Monday, where we expect the policy rate to remain unchanged.

Meanwhile, select scrips are likely to stay in focus as the results season continues.

Moreover, any development regarding the IMF Executive Board’s approval is expected to further bolster investor sentiment.

"We foresee the momentum in the KSE-100 to continue given successful staff-level agreement of the IMF’s second review, minimal flood impact and improved credit ratings by global agencies amid falling fixed income yields", said an analyst from AKD Securities.

Investor sentiment is expected to further improve on the likelihood of foreign portfolio and direct investment flows, driven by improved relations with the US and Saudi Arabia.

This outlook is supported by the lack of alternative investment avenues and the attractive valuation of local equities, with the KSE-100 trading at a multiple of 7.4x while offering a dividend yield of 6.6%.

An analyst from Spectrum Securities said the upcoming sessions are rollover week, and given the outstanding high leverage near PKR 98 billion, the market could be prone to downward pressure, with the possibility of relatively higher rollover rates this time around.

Focus will remain on first and third quarter earnings announcements next week by National Bank of Pakistan, Lucky Cement, Cherat Cement Company Limited, Interloop Limited, Gul Ahmed Textile Mills Ltd, PSO, Attock Petroleum Ltd, National Refineries Ltd, and Attock Refinery Ltd.

After the market bounced back close to 168,000 on October 21, the index fell close to the 30-day moving average of 162,800. Any move below this level will expose the lows near the 158,000-mark on October 13.

An analyst said the absence of positive triggers could lead to near-term market weakness or consolidation.