KARACHI: Host of key financial developments during the outgoing week kept the investors to stay away from the market which lowered the volume with the index finding ways to score big checked by continuous selling pressure from the foreign investors which totaled at 51 million dollars during the period.
The KSE-100 index declined by 0.9 percent or 373 points to close at 40,496 during the outgoing week where average daily transactions in the bourses declined by 3.1 to 152 million shares on week on week basis. Foreign investors offloaded equities worth $51.1 million during the week, where most of the selling was concentrated in Banks amounting to $21.5 million and Cements $21.1 million.
On domestic side, Insurance and Mutual Funds provided most of the liquidity to the market. Most of the foreign selling was concentrated in the last day of the outgoing week, nearly 64 percent due to deadline of the MSCI rebalancing, said an analyst from BMA Capital Management.
The US dollar opened on Friday suddenly shot up to Rs 142 and traded as high as Rs 144 during the day before closing at Rs 139 (up 4% from previous day). This takes rupee cumulative depreciation to 26% during 2018 to-date. In the Press Conference held in the latter half of the day, the Finance Minister attributed the latest round of Rupee depreciation to 1) increasing foreign loans, 2) depleting foreign exchange reserves, 3) low exports and 4) artificial cap on the value of dollar in the previous government regime.
State Bank raised Policy Rate by 150bps to 10% which was in line with expectations reflected by money market yields but higher than equity market consensus of 100bps. The decision to raise interest rate was based on 1) inflationary pressures and expectations, 2) relatively lower real interest rates, 3) high Twin Deficits, and 4) hawkish monetary policies adopted by developed economy.
During the week, Brent Crude declined on the back of higher than expected US inventories. As a result, Exploration and Production (E&P) stocks were down during most part of the week but recovered on Friday after the latest round of rupee depreciation – Oil and Gas Development Company (OGDC), Pakistan Petroleum (PPL), Mari Petroleum (MARI) and Pakistan Oilfields (POL) returned 2.6 percent, 3.4 percent, 3.6 percent and 1.1 percent, respectively while the sector was up 2.8 percent.
An analyst from Habib Metro said that the market to show a mixed trend for upcoming sessions pricing in the impact of rupee depreciation, therefore, we advise investors to stay cautious and limit their exposure to stocks that offer a currency hedge and do not carry high leverage.
While an analyst from BMA Capital Management said a key development at the end of the last trading day was the announcement of above expected policy rate hike by the central bank (up 150bps to 10%). The same is expected to trigger investors’ interest in banking scrips in the upcoming week while leveraged names may face pressure.
A key event to watch out for next week is the meeting of OPEC and like-minded non-OPEC members (Russia), scheduled on 6th-Dec’18, where a production cut is expected in order to stabilize the oil market. The same may translate into higher int’l oil prices and potentially trigger a rally in listed E&P sector, he explained.