Expected interest rate hike, mini-budget may haunt: PSE

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After closing the last week on a positive note, expected raise in interest rate and the proposed mini-budget may haunt the Pakistan Stock Exchange in the week starting today (Monday).

Other negative factors for the market remain rising current account deficit, increasing core inflation and depreciating exchange rate, which may keep the investors at bay; however, the market may give any surprise in case of less-than expected increase in policy rate (150bps).

The State Bank’s Monetary Policy Committee (MPC) will meet on Tuesday (December 14) for upward revision in policy rate.

Yields on three-month treasury bills (T-Bills) in an auction held on December 01 jumped by 228 basis points as the government only accepted bids worth Rs504.3 billion in all three tenors against a target of Rs750 billion.

This is a clear indication how much policy rate may be revised upward. Increase in interest rate may move investors to opt for safe havens instead of trying luck in the bourse.

Reportedly, the government has finalised a mini-budget involving fiscal adjustments and expenditure cuts worth about Rs600 billion as part of an understanding with the International Monetary Fund (IMF). A draft of Tax Laws (Fourth) Amendment Bill 2021 for abolishing almost around 100 tax exemptions as a standard rate of 17 percent General Sales Tax (GST) would become applicable with approval of the parliament.

The government is set to withdraw GST exemptions and slap standard rate of 17 percent on import of mobile phones, computers, silver/ gold, different articles of jewellery, re-meltable scrap, LPG and many other products. The government is taking this step to pave the way for the approval of the IMF board in the middle of January for the release of $1 billion loan.

Expecting some good from the worst, the finalisation of these two steps, including hike in policy rate and mini-budget presentation, will at least clear the dust and give the market a clear direction as the market has been under pressure for a few weeks for these two factors. Again, prices of some blue-chip stocks are broken well below the fall in index level due to the uncertainty, which always proves to be more fatal for stocks than harsh economic steps. Moreover, increase in interest rate may support falling rupee and arrest inflationary trends.

The KSE-100 Index gained 163 points (+0.38 percent) to close at 43,232.83 points on a week-on-week basis. Sector-wise, positive contributions came from oil and gas exploration (320 points), technology and communication (257 points), food and personal care (32 points), chemical (29 points) and insurance (10 points).

Sectors that contributed negatively to the benchmark index were commercial banking (187 points) and cement (112 points).

Share-wise, positive contributors were TRG Pakistan Ltd (208 points), Pakistan Petroleum Ltd (155 points), Oil and Gas Development Company (101 points), Systems Ltd (49 points) and Mari Petroleum Ltd (34 points). Meanwhile, negative contributors were Engro Corporation (66 points), Habib Bank Ltd (64 points) and United Bank Ltd (44 points).

Foreign selling slowed down in the outgoing week and amounted to $1 million versus a net sell of $62.84 million in the preceding week. Major selling was witnessed in cement ($1.2 million), fertilizer ($0.5 million) and exploration and production ($0.3 million).

On the local front, buying was reported by “other organisations” ($3.9 million) followed by companies ($2.1 million) and individuals ($1.3 million). The daily average volume clocked in at 204 million shares, down 36 percent from a week ago, while the average value traded settled at $42 million, down 54 percent on a weekly basis.

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