Stock market gains 4.2% in February amid political, economic volatility

The KSE-100 index closed the month (February) with a 4.2% increase, ending at 64,579 points despite experiencing fluctuations amid political uncertainties and anticipation of general elections. 

The index recorded a monthly fluctuation range of 4,706 points, reaching a low of 59,873 points during the period. 

According to a note from AKD Research, the conclusion of elections and the finalisation of key political positions have mitigated political turmoil, contributing to market stability.

In the context of the MPC setting, the central bank maintained a status quo stance for the fifth consecutive month. However, it is anticipated that the first policy rate cut might occur during the MPC meeting in April 2024, if the CPI inflation drops below the 20% threshold. 

The month also saw discussions on the legitimacy of the general elections from both domestic and international outlets, wherein the PTI’s founder wrote a letter to the IMF asking to investigate the poll’s results. However, the IMF expressed readiness to collaborate with the new government. This comes as the final tranche of $1 billion from the IMF's program is due in March 2024.

Market activity, measured by the average daily traded volume (ADTV), decreased by 35% to 190.5 million shares. However, market capitalisation increased by 2.13% to $27.1 billion.

The pharmaceutical sector emerged as the top performer, with a 10.3% return, driven by regulatory decisions on medicine pricing and deregulation efforts. 

Other notable sectors included leasing companies (9.8% MoM), fertilizers (8.3%MoM), transport (7.9%MoM) and automobile assemblers (7.1%MoM). 

On the downside, major declines noticed during the month were in mutual funds (-9.8%MoM), vanaspati and allied (-6.1%MoM) and textile companies (-4.3%MoM). 

As per AKD Research, future trajectory of the market is anticipated to hinge on forthcoming inflation data and SBP's policy decisions. Additionally, The completion of the IMF's current review is crucial ahead of a significant Eurobond payment in April.

With financial strategies in place, the market anticipates a new Extended Fund Facility by May 2024, despite potential short-term inflationary pressures from fiscal adjustments, the brokerage note added.