Weekly Review: market likely react to policy rate hike

Weekly Review: market likely react to policy rate hike

KARACHI: The stock market is likely to react to a hike in the policy rate during next week. The State Bank of Pakistan (SBP) increased the key policy rate by 150 basis points to 8.75 per cent.

Analysts at Arif Habib Limited said that following clarity in the monetary policy, the market will react accordingly next week.

The recent bill to make SBP autonomous, as well as policy stance, should now effectively remove another pre-condition of the IMF and therefore, it is believed that market sentiment is hinged upon the announcement of the IMF package.

Once through, the market is likely to post a rebound.

The benchmark KSE-100 index of the Pakistan Stock Exchange (PSX) is currently trading at a PER of 4.9x (2022) compared to Asia Pac regional average of 14.8x while offering a dividend yield of 8.4 per cent versus 2.2 per cent offered by the region.

The market commenced on a negative note this week as a result of the uncertainty of IMF disbursements and mounting inflationary pressure but gained momentum with the government agreeing to pay PKR 190 billion to IPPs and unchanged petroleum prices.

Albeit, the pressure was once again witnessed with preponement of the SBP’s monetary policy meeting with the expectation ripe of a 100bps hike.

However, the MPC announced a 150 basis points hike in the interest rate following the release of data on the current account deficit, which increased to USD 5.1 billion in the first four months of the current fiscal year, against a positive balance of USD 1.3 billion last year.

However, in anticipation of the same, banks posted a rally on the last working day. That said, the KSE-100 index closed at 46,489 points, climbing up by 740 points (up by 1.6 per cent WoW).

Sector-wise positive contributions came from i) Banks (403 points), ii) Fertilizer (172 points), iii) Cement (158 points), iv) E&P (140 points), and v) Power (43 points). Whereas, sectors which contributed negative were i) Technology (176 points), and ii) FMCG (41 points). Scrip-wise Positive contributors were MEBL (96 points), LUCK (76 points), UBL (73 points), PPL (72 points) and MCB (71 points). Meanwhile, scrip-wise negative contribution came from TRG (233 points), UNITY (32 points) and PSX (16 points).

Foreign selling continued this week, clocking in at USD 25.0 million compared to a net sell of USD 5.3 million last week. Major selling was witnessed in Commercial Banks (USD 14.7 million) and Fertilizer (USD 4.7 million). On the local front, buying was reported by Insurance Companies (USD 13.5 million) followed by Companies (USD 7.7 million). Average volumes clocked-in at 245 million shares (down by 23 per cent WoW) while average value traded settled at USD 53 million (down by 17 per cent WoW).