KARACHI: The stock market likely to continue its negative momentum into the next week. The rise in interest rates will keep investment sentiment cautious as highly levered companies will face a setback to their earnings.
Analysts at Arif Habib Limited said that investors should take positions in banks which will benefit from improvement in Net Interest Margins in the aftermath of the policy rate increase.
The domestic equity bourse remained bearish this week, closing at 40,496 points (down 0.91 percent WoW).
The analysts highlighted a lack of economic clarity with regards to the IMF program and the conditions attached with a possible bailout package as key reasons for the investors remaining on the back foot.
Moreover, the investors remained wary as expectations of a rate hike in the MPS today remained ripe throughout the week, and which eventually culminated in a 150bps hike announced on November 30.
Sectors benefiting from a rate hike (Banks) traded in the green zone whereas other major sectors such as Cements and Fertilizers displayed lackluster performance as costs of financing will face a further uptick.
That said, today’s (Friday) trading session saw the second highest traded value (USD 172 million) during Nov’18, as LUCK and UBL faced exclusion from MSCI mid cap, hence attracting foreign selling.
Sector-wise negative contributions came from i) Cements (-254 points), ii) Fertilizers (-106 points), iii) Oil and Gas Marketing Companies (-100 points), and iv) Engineering (-58 points).
Whereas, positive contributions were led by Commercial Banks (231 points) and Oil & Gas Exploration Companies (159 points). Meanwhile, scrip-wise negative contributions were led by i) LUCK (-107 points), ii) ENGRO (-83 points), and iii) SNGP (-42 points), while PPL (67 points), MCB (54 points) and OGDC (52 points) contributed positively to the index.
Foreign selling continued this week clocking-in at USD 51 million compared to a net sell of USD 11.6 million last week. Selling was witnessed in Commercial Banks (USD 21.5 million) and Cement (USD 21.1 million).
On the domestic front, major buying was reported by Insurance Companies (USD 25.0 million) and Mutual Funds (USD 12.3 million). Volumes during the week settled at 152 million shares (down by 3.1 percent WoW) while value traded arrived at USD 72 million (up by 29 percent WoW).
Other major news: i) Budget deficit continues to widen, ii) Govt mulls up to Rs200bln sukuk for circular debt, iii) Pakistan raises $1.5 billion in loans, grants in July-October iv) Lifting of furnace oil from refineries ordered, and v) Tarbela 4th Extension: WAPDA completes load rejection test of all units.
Our top picks are OGDC, PPL, EFERT, FFC, SNGP, BAFL, BOP, and HUBC. The KSE-100 index is currently trading at a PER of 7.6x (2019) compared to Asia Pac regional average of 12.4x and while offering DY of ~7.4 percent versus ~2.9 percent offered by the region.