KARACHI: Despite announcement of $21 billion package, the outgoing week remained negative on the back of growing tensions between India and Pakistan. Consequently, the Pakistan Stock Exchange (PSX) benchmark index closed in red at 40,016 points, during the week, exhibiting a decline of 1.2 percent.
Market participation remained lackluster as evident from decrease in average daily turnover and average daily volume by 22.1 percent and 13.6 percent, respectively. Foreign investors remained net buyers, exhibiting an inflow of $3.5 million during the week ended February 22, 2019.
During the week, statements from the other side of the border to isolate Pakistan diplomatically, moves such as imposition of 200 percent customs duty on Pakistani exports into India and other punitive measures caused market participants to proceed with caution and had an overbearing impact on performance.
“Corporate results that were generally in line with or higher than expectations in some cases did little to improve the trend. Exacerbating the issue was the coincidence of the week with futures’ rollover, which also negatively affected market performance. At the same time, there might have been a collective sigh of relief for policymakers as the current account deficit during the month of January declined by 54 percent on the back of a sharp reduction in trade deficit, whereas some support for overall balance of payments was also visible via loans from friendly countries,” Ahmed Lakhani at JS Global Capital said.
Oil import bill increased by 10 percent to $8.7 billion during 7MFY19. Additionally, textile exports increased by only 1.2 percent in 7MFY19 despite currency depreciation where total exports clocked in at $7.8 billion. Furthermore, cotton production decreased by 6.8 percent to 10.7 million bales with the lower area under cultivation. Also, Economic Coordination Committee (ECC) ordered Sui northern Gas Pipelines (SNGP) to supply LNG to fertilizer plants – Agri Tech and Fatima Fertilizer – to ensure smooth supply of urea.
On the macro front, foreign exchange reserves of the country decreased to $14.8 billion from $14.9 billion owing to external debt payment. On the other hand, fiscal deficit stood at 2.7 percent of the GDP in 1HFY19 as opposed to 2.2 percent of the GDP in the same period last year mainly due to increase in expenditure despite cut in development spending. Moreover, foreign direct investment (FDI) decreased by 18 percent during 7MFY19 on the back of lower inflows from China.
“After tracking negative leads in the past three weeks, we expect the benchmark index to witness a rebound given improvement in economy as current account deficit has narrowed by 17 percent coupled with tension between Pakistan and India cooling off and materialization of Saudi deal which will improve the investment climate. On the other hand, rising international oil prices and expected result announcements may keep certain scrips under limelight,” a report issued by Arif Habib Limited said.