IMF-related developments to guide PSX this week

KARACHI: After closing the fifth consecutive week on a positive note (+1.68 percent) amid the government’s steps to pave way for revival of the International Monetary Fund’s Extended Fund Facility, the Pakistan Stock Exchange (PSX) may continue to trade in green during the week starting today (Monday).
The benchmark KSE-100 Index of PSX gained around 759.58 points on a week-on-week basis, as the market opened at 44596.07 points on Monday and closed the session at 45,345.65 points on Friday. Importantly, average traded volumes during the week increased by 46 percent on a week-on-week basis.
During the last week, the PSX started the new year trading on a positive note and remained positive for the next two days, gaining 290.82 points (+0.65 percent) on Monday, 503.95 points (+1.12 percent) on Tuesday and 17.05 points (+0.04 percent) on Wednesday. However, it turned bearish on Thursday after seven consecutive positive sessions, shedding 325.59 points (-0.72 percent). But, this bearish sentiment vanished on Friday and the market gained 263.35 points (+0.58 percent) to close at 45,345.65 points.
During the coming week, the market outlook will again be guided by expected improvement on the external front through available financing from multilateral sources with the International Monetary Fund (IMF) as the key anchor. The investors have pinned high hopes on the revival of the IMF programme which, if revived, will fade away concerns on the external account. According to the official figures shared by the State Bank of Pakistan (SBP), additional funds of $17 billion are likely to be unlocked during the second half of FY22 once the IMF Board gives a go-ahead.
However, the things may reverse at the PSX in case of a delay in the IMF programme revival, as higher commodity prices will affect the foreign exchange reserves and eventually decrease the import cover by a month, which may trigger depreciation in the rupee value.
According to Pearl Securities, the market took direction from a 13 percent decline in imports, the Consumer Price Index (CPI) inflation at 12.3 percent in December and amendments made to the finance bills led to resumption of the IMF programme. “Coal prices increased, amid Indonesia banning the export of coal to avoid power outages, while the trade deficit widened 106 per cent, reaching $25.5 billion in 1HFY22 [first half of FY22].”
“Going forward, we expect the market to move high post approval of the mini-budget from the Parliament. Therefore, we recommend our investors to adopt the “Buy on Dip” strategy in the upcoming week,” said the brokerage in a note.
Another brokerage Arif Habib Limited expects the market will show positivity in the upcoming week attributable to successfully achieving vaccination targets, the meeting with IMF scheduled on January 12, and expectation of healthy corporate profitability during the outgoing quarter particularly across cyclical sectors should keep sentiments positive.
“However, rising cases of Covid-19 (fifth wave of coronavirus) and current macro-economic concerns like rising imports, and higher inflationary reading due to increasing prices of commodities could keep the market range-bound,” it added. The KSE-100 is currently trading at a PER of 5.1x (2022) compared to the Asia-Pacific regional average of 14.0x while offering a dividend yield of 8.7 percent versus 2.3 percent offered by the region. – TLTP