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Pak Rupee has appreciated by 4.3 percent against US dollar in the last two months, the 10-Y bond yields are down by 75 bps in seven working days, the unofficial cement numbers are highest in October, auto sales are growing, textile exports are also up - to name just a few factors demonstrating economic recovery. Yet, the stock market is down by 6.5 percent in the last four sessions.

One lesson is that short term volatility is not an indicator of economic (mainly listed sectors’) fundamentals. Uncertainty and lack of fresh liquidity explain the fall in the market. Last week, the downward movement was initiated by foreign and mutual funds’ selling – mainly driven by drop in global markets fall and domestic political noise. In a nutshell, it is noise that is tanking the index.

This space is not one to advise any buying or selling decision. Fundamentally, there is no reason for the market to fall. Many are of the view that uncertainty is creating panic. Covid second wave could result in lockdown of major exporting destinations. Covid cases are picking up in Pakistan as well, and that could result in domestic lockdown. Political noise has increased and could continue till senate election. If that is true, market will remain range bound.

In early days of Covid, market was down by 37 percent in nine weeks and thereafter, local institutions and retail investors jumped in. The market moved up and all made good money. The greed factor was natural in luring retailers. The leverage in the market (also due to low interest rates) further cemented the recovery. But that leverage had to settle and is partially responsible for the recent fall.

Foreigners are net sellers since the start of Covid. They were sellers in the past few sessions too. But the local buyers seem to be exhausted. Those with liquidity came in early by having the understanding that the market was at a steep discount. The market needs another layer of buyers to move further up. Fundamentally, there is no reason for the market to not move up.

Others are of the view that oil prices have crashed and that has impacted energy heavy index. But why are the stocks that benefit from low energy prices declining? Why, when the low oil prices are set to reduce twin deficit (current and fiscal) the whole market is in red? Is it due to hangover of energy heavy stocks? One may need to ponder how much the index is energy heavy today. It must also be considered how sectors such as tech, pharma and other are slowly becoming big in the market.

The quarterly results are good. According to a broker report, KSE-100 profitability is up by 38 percent (61 percent ex-E&P) YoY in Jul-Sep 2020. Better sales numbers continued in October as well. But the market is moving down. Here, it must be cautioned that past numbers and market moves on outlook, whereas the future is uncertain as per them.

Uncertainty is a killer. There is uncertainty on the inflation outlook. There is uncertainty on the US elections. There is uncertainty on the global and domestic lockdown. There is uncertainty on the resolution of circular debt. There is uncertainty on the political temperature till senate elections.

US elections will be done by this week. International lockdown brings the commodity prices down – good for a country such as Pakistan. The adverse impact could be in textile. But Pakistan’s main selling is in supermarkets – towels, bed sheets etc. That demand grows in the lockdown. Yes, on garments and a few other items, there could be pressure. But one leading textile player is of the view that their orders are booked till June.

On domestic lockdown, one can say with that it won’t be beyond services sector (where public gatherings are a possibility). These – such as educational institutes, hospitality businesses etc, are not really listed. Even their tax contribution is not much – as can be seen from FBR numbers in the days of lockdown. There might be no lockdown for industry.

The problem is liquidity in the market. Keen observers are of the view that the market needs fresh wave of investors or resolution of circular debt to boost the market. With circular debt resolution, energy stocks will start paying dividends to attract conservative investors. That, or young investors –liking tech and pharma, needs to come with fresh blood.


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