Market overview: A turbulent week amid elections

The stock market witnessed a volatile week as the elections overshadowed the economic indicators and corporate news, according to a note by AKD Research. 

The KSE100 index, which tracks the performance of the top 100 companies, closed the week at 62,943.74 points, down by 0.09% from the previous week.

The week kicked off on a positive note with hopeful signs from the International Monetary Fund (IMF) regarding Pakistan’s circular debt and power tariff rationalization plans, alongside a reported narrowing of the trade deficit for January.

However, the optimism was short-lived as the uncertainty surrounding the election results on Friday eroded the early gains. The preliminary election results took the markets by surprise. 

Contrary to widespread expectations, the early outcomes significantly favored PTI-backed independent candidates. This development sent shockwaves through the Pakistan Stock Exchange (PSX), with the KSE100 index tumbling by 2,300 points at the opening. Although there was a partial recovery later in the day, the index closed the week at 62,943.74 points, marking a modest decline of 0.09%.

Market participation remained low with investors seeking clarity over the election results, as the average daily traded volume further shrunk this week by 2.3% week-on-week, averaging at 3.5 million shares. 

Furthermore, the foreign exchange reserves held by the State Bank of Pakistan (SBP) declined by $173 million to end at $8.04 billion as at Feb 2nd, 2024. 

On the currency front, the Pakistani rupee appreciated by 0.05% week-on-week to close at 279.41 against the US dollar.

The week was not without other significant developments. Notably, the government faced challenges in its auction for Market Treasury Bills (MTBs), securing only Rs64 billion against a target of Rs480 billion. 

Amendments to the refineries policy were approved, amidst reports of shrinking exports of services in December and the government borrowing over Rs4 trillion from banks in seven months.

Other major news flows during the week included; 1) Auction for Market Treasury Bills: Government raises only Rs64 billion against Rs480 billion target, 2) Cabinet Committee on Energy approves amendments to refineries policy, 3) Exports of services shrink in December, 4) Government borrows over Rs4 trillion from banks in seven months.

Sector-wise, Synthetic & rayon, Paper & board, and Property were amongst the top performers, up 4.2%/2.0%/1.5% week-on-week respectively. 

On the other hand, Leasing companies, Transport, and Textile composites were amongst the worst performers with a decline of 5.2%/2.2%/1.3% week-on-week. 

Flow wise, major net selling was recorded by Mutual Funds with a net sale of $5.5 million. Foreigners absorbed most of the selling with a net buy of $5.7 million. 

Company-wise, top performers during the week were, i) Pakistan Services Limited (PSEL), ii) Shabbir Tiles and Ceramics Limited (SML), iii) Kohinoor Textile Mills Limited (KTML), iv) Younus Brothers Limited (YOUW), and v) IBL Funds Limited (IBFL), while top laggards were, i) Pakistan Gum and Chemicals Limited (PGLC), ii) AGP Limited (AGP), iii) Attock Petroleum Limited (APL), iv) Pakistan International Bulk Terminal Limited (PIBTL), v) National Foods Limited (NATF).

According to AKD Research, market outlook would hinge on the end result of the election, with indications pointing towards a PDM-like government. If this transition occurs peacefully, it could be positive for the market as it would boost investor confidence, especially considering previous efforts by a similar setup. 

Overall, the market is currently at levels with attractive valuations, boasting a forward price-to-earnings ratio of below 4x. However, we advise clients and investors to adopt a cautious approach and either maintain or take positions in mainboard stocks to limit risks.