The bulls were not quite ready it seems having gained 9 percent in May, some steam was lost in June, as the benchmark KSE-100 index shed 2.5 percent. Having touched a 4-year high of 48726 on June 14, the index has found strong resistance beyond that point. There is not much history to fall back on these levels to make sense of resistance and support at and around these levels.
The first time when the KSE-100 reached 48000, it went past smoothly. If anything, 48000 proved quite a support for good five months, with minimal resistance offered at 49000 and more at 50000. June 14, 2017 was the last instance of the index closing over 48000 points, before June 1, 2021. It tried getting to 49000 but did not seem to have enough legs, and instead has come close to 47000. But there sure appears resistance at 48000, technical or otherwise, is for the chartists to pull out the Fibonaccis and tell.
The PIB yield continues to be a leading indicator and 10-year rates gradually inched up towards the end of month – coinciding with the drop in index value. The growing fiscal challenges, the commodity price cycle, the likely wage increase in private sector – all point towards a change in policy rate, sooner than/or later. The hike may still be gradual as the central bank has so often said of late, but 10-year sovereign yields are only likely to go in one direction from here – and that is up.
What has kept the bulls from taking over despite a budget that is generally viewed as stock market friendly, can be viewed from the sectoral performance. Automobile and cement have outperformed the KSE-100 since the advent of Covid-19. Technology sector has been the runaway leader, growing 5 times in 15 months. But it is the sluggish performance of the index heavyweights – commercial banks and oil& gas sector – that the bulls do not find enough legs to have a decent run.
The Foreign Portfolio Investment has been nothing to write home about in the last five years. The net selling of $380 million in FY21 is in line with the 5-year average, where not even a single year returned net buying from foreign investors. Four years from FY17 to FY20 – commercial banks remained the star attraction in terms of both, buying value and volume – accounting for a quarter of all FIPI transactions.
For the first time ever, technology and communication sector, with nearly 30 percent of all FIPI value has displaced commercial banks as the top FIPI attraction. And by some distance too. Technology in fact, is one of only three sectors, that have returned net buying rom foreign investors in FY21. The volumes are there for everyone to see and may well have established a new normal with at significantly higher numbers, than the last decade. But for the index to rally, technology alone won’t do.
The giants will have to wake up from the slumbers.