PSX on a bumpy ride but any surprise not out of question

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KARACHI
Hanging sword of up to 200bps raise in interest rate, rising current account deficit, increasing inflation and depreciating exchange rate may keep the investors at bay at the Pakistan Stock Exchange (PSX) during this week; however, any surprise is not out of question, with the index at on over-sold position.
The transfer of $3 billion from Saudi Arabia to the State Bank of Pakistan (SBP) account is a positive news for the economy but how much it can help attract dejected investors back to the bourse is yet to be seen, as SBP’s Monetary Policy Committee (MPC) meeting will meet on December 14 for upward revision in policy rate.
Yields on three-month treasury bills (T-Bills) in an auction held on Wednesday last 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 and this was one of the top reasons for free fall of the PSX on Thursday last. Increase in interest rate may move investors to opt for safe havens instead of trying luck in the bourse.
The Federal Board of Revenue (FBR) has announced to review instances of valuation of immovable property exceeding the market rates in consultation with the stakeholders, after jacking up the valuation rates for 40 major cities massively. This move hit the industries related to construction sector hard and the announced review may help stocks of cement, steel and other sectors perform well after nosediving during the last two sessions.
Foreign selling, which has been underway for the last many weeks, has also fuelled the market’s decline. According to experts, the market may attract investment as rebalancing the PSX to the status of frontier market has been completed. They were of the view that foreign buying will come into the market in the coming days, as foreign buying had been at standstill due to rebalancing of MSCI emerging markets to frontier markets.
They said that falling oil and commodity prices at the international level may also support the country not only in terms of balance of payment but also in terms of reduced cost of production.
The federal cabinet approved gas load management plan for the winter season in order to better deal with the gas shortage and allowed supply only for independent power producers, fertilizer companies and export oriented industries. Moreover, hike in electricity tariff as well as petroleum levy and upcoming mini-budget to ensure resumption of the Extended Fund Facility (EFF) by the International Monetary Fund (IMF) are taking a heavy toll at the bourse.
The KSE-100 Index shed 881.33 points (-2 percent) during the last week to close at 43,232.83 points. Recovery in participation came in with average daily trading volumes increasing by 20.8 percent to 319 million shares. Average value of traded securities for the outgoing week declined went up 73.6 percent to $15.85 million. Foreign outflows, hike in the industrial power tariff, and uncertainty over resumption of the IMF programme played a catalytic role in the bearish run at the market.
According to analysts, trade imbalances are hovering at record levels during the last few months because of rising economic activity amid the commodity up-cycle. They hoped that government’s steps as well as decreasing prices of crude oil and coal may bring down import bill in the coming months.