Declining T-bill yields, strong corporate results drive PSX to 1% weekly gain: report

The stock market maintained a largely positive momentum throughout the week, driven primarily by declining T-bill yields and favorable corporate results, according to a note by the brokerage firm AKD Research. 

The benchmark KSE-100 index closed the week at 78,801 points, with a weekly gain of 756 points or 1.0%. 

In Wednesday’s T-bill auction, cut-off yields saw a significant decline, dropping by 74-148 basis points, which brought the 3-month yield down to 17.49%. This decline indicated market expectations of a rate cut exceeding 100 basis points in the upcoming Monetary Policy Committee (MPC) meeting on September 12, 2024.

Consequently, these rate cut expectations led to the rerating of high dividend-yielding stocks, notably FFC and UBL, which contributed 236 and 189 points, respectively, to the weekly index gains. 

Additionally, NBP stood third in terms of index point contribution, driven by expectations of lower-than-expected provisioning related to its pension case in the upcoming financial results. 

The pharmaceutical sector also performed well, buoyed by better-than-anticipated financial results from companies within the sector, supported by the deregulation of non-essential drugs.

On the macro front, the anticipated timeline for IMF Executive Board approval was pushed to September 2024 from the previous August 2024 deadline due to unmet debt rollover requirements. However, the Finance Minister remained optimistic about securing the lender’s board approval by next month. Meanwhile, the current account remained under control, reporting a deficit of only $162 million for July 2024.

Market participation surged by 27% week-on-week, with the average daily traded volume rising to 468 million shares compared to 368 million shares the previous week. 

On the currency front, the Pakistani rupee largely remained flat against the US dollar throughout the week, closing at 278.50 per US dollar.

Other key developments during the week included a 64% year-on-year surge in July FDI to US$136.3 million, a 0.92% year-on-year growth in the FY24 LSM sector, RDA inflows reaching US$161 million in July 2024, and a 19% increase in banking sector deposits to PKR 30.6 trillion in July 2024.

Sector-wise, Woollen, Jute, and Leather & Tanneries were among the top performers, up 11.8%, 11.2%, and 11.1% week-on-week, respectively. 

On the other hand, Tobacco, Automobile Assemblers, and Textile Weaving were among the worst performers, with declines of 2.9%, 2.1%, and 1.6% week-on-week. 

In terms of market flows, major net selling was recorded by Insurance companies, with a net sell of US$6.3 million. Conversely, Mutual Funds, Banks, and Companies absorbed most of the selling with net buys of $3.5 million, $3.5 million, and $3.3 million, respectively.

Company-wise, the top performers during the week were: i) NBP (up 19.2% week-on-week), ii) PGLC (up 17.1% week-on-week), iii) SRVI (up 14.3% week-on-week), iv) HINOON (up 12.6% week-on-week), and v) BNWM (up 11.8% week-on-week). The top laggards were: i) YOUW (down 14.3% week-on-week), ii) CEPB (down 14.0% week-on-week), iii) SML (down 8.9% week-on-week), iv) ISL (down 8.6% week-on-week), and v) KTML (down 6.3% week-on-week).

According to the AKD Research, the market is expected to continue its positive momentum with the August 2024 inflation reading, the upcoming MPC result, and any developments on the IMF deal remaining in focus. 

Sectors benefiting from monetary easing and structural reforms are likely to stay in the limelight. Additionally, with declining fixed income yields, high dividend-yielding stocks are expected to remain favorable, it added.

Brokerage firm said that their top picks include OGDC, PPL, MCB, UBL, MEBL, FFC, PSO, LUCK, FCCL, and INDU.