‘Bloodbath’ on bourse

KARACHI: Pakistan stocks got a hammering on Thursday with the benchmark KSE-100 Index losing over 2,100 points or nearly 4.7% during a “bloodbath” session as the market reacted sharply to widening trade deficit data and expectations of a hike in interest rate in coming months.

This was the worst single-day fall for the PSX’s benchmark index since the pandemic-driven sell-off witnessed in March 2020. It was also the biggest decrease for the KSE-100 this calendar year, and surpasses the fall on March 29, 2021 when the index fell nearly 2.4%, which now pales in comparison.

Just a day ago, the KSE-100 saw an increase of nearly 300 points.

However, at noon the very next day, the index was hovering around the 43,900-point level – a fall of 3.2% – and heading for one of its worst days of the calendar year. It lost further ground in the next hour, falling to the 43,500-point level before hitting 43,100 near the end of the session.

The sell-off comes after Pakistan posted a massive trade deficit in July-November FY2021-22, denting economic sentiment. The auction result of Pakistan Market Treasury Bills’ (MTBs) also revealed weighted average yield of over 11% for six-, and over 10.3% for three-month papers. Additionally, a global sell-off amid fears of the Omicron variant took additional toll, but Pakistan’s market was mainly affected by a higher-than-expected trade deficit and T-bill auctions that raised expectations of a rate hike in upcoming monetary policy announcements.

Following the developments, investors resorted to a dump-and-sell approach with shares falling across the board. Foreign Investors Portfolio Investment’s (FIPI’s) position, however, revealed a net buy of $0.74 million.

At close on Thursday, the KSE-100 Index ended with a fall of 2,134.99 points or 4.71% to finish at 43,234.15.

Inflation reading that touched a 21-month high in November also contributed to the negative sentiment.

This also raised interest-rate hike expectations, multiple analysts told Business Recorder, who added that this could put the central bank on the path of even more aggressive monetary tightening.

“The exceptionally high import bill is a massive concern,” said one analyst. “This has raised current account deficit expectations, and is bound to put more pressure on the rupee.”

The rupee also fell in the inter-bank market in tandem with the bloodbath at the stock market, hitting a record low to surpass the all-time weakest level it hit just a few days ago.

The PSX saw all-share volume of around 250 million shares by 1:00pm, with index-heavy cement, construction, and auto sectors bearing the brunt of the sell-off. By close, volume rose to nearly 386.75 million shares trading hands on the all-share index, up from 241.07 million a day ago.

WorldCall Telecom was the volume leader with 33.02 million shares, followed by Dolmen City (29.58 million), and Byco Petroleum at 22.83 million shares, revealed PSX data.

Market reacts

Experts cited the bloodbath to expectations over increase in the policy rate and deteriorating external trade figures.

“Taking indication from the T-bill auction, market is skeptical over the possibility of an increase in policy rate by the central bank in the upcoming monetary policy meeting,” Saad Hashmey, Executive Director at BMA Securities, told Business Recorder, adding that the market expects another 150bps hike in the upcoming announcement.

“Furthermore, the increase in trade gap has also dented investor confidence.”

Faisal Khan, Head of Equities at IGI Securities, said fear of increase in discount rate amid hike in cut-off yield during the T-bill auction led to the bloodbath.

Tahir Abbas, Head of Research at Arif Habib Limited, said the import figures were far higher than expectations.

“The increase in cut-off yield signals a hike in the policy rate,” Abbas told Business Recorder. “We expect the policy rate to increase in the range of 75-100 bps which would push the rate at 9.5-9.75%.”

Abbas, however, was of the view that the market has ‘overreacted’ and would stabilise in the coming days.

He urged the government to take stern measures to curb the import bill in order to ease the current account deficit.

In November 2021, imports were recorded at nearly $8 billion, a year-on-year growth of 80%.

Pakistan’s exports during November 2021 increased by 33% to a historic monthly high of $2.903 billion as compared to $2.174 billion during the corresponding period last year, according to the commerce advisor. However, a historic high in the import figure led to the widening of the trade deficit.

Pakistan Stock Exchange saw a bloodbath session, suffering worst decline in the current calendar year due to panic selling on investor concerns over highest-ever monthly trade deficit, expectations of further monetary tightening, all-time high CAD and Pak rupee depreciation.

The benchmark KSE-100 Index plunged by 2,134.99 points or 4.71 percent, the worst single-day decline during the current calendar year and closed below 44,000 psychological level at 43,234.15 points.

It was the fourth worst-ever decline in the history, as the KSE-100 Index had witnessed worst-ever single day decline of 2,376 points on March 16, 2020. The second worst decline of 2,201 points was witnessed on March 18, 2020 and third one of 2,153 points on July 11, 2017. Majority of stocks closed on their lower circuits.

Daily trading volumes on the ready counter increased to 386.753 million shares as compared to 241.069 million shares traded Wednesday.

BRIndex100 declined by 260.74 points or 5.58 percent to close at 4,415.80 points with total daily turnover of 334.053 million shares.

BRIndex30 decreased by 1324.62 points or 7.02 percent to close at 17,539.77 points with total daily trading volumes of 209.693 million shares.

The market capitalization declined by Rs 332 billion and stood at Rs 7.418 trillion. Out of total 365 active scrips, 338 closed in negative and only 16 in positive while the value of 11 stocks remained unchanged. WorldCall Telecom was the volume leader with 33.019 million shares however lost Rs 0.18 to close at Rs 2.01 followed by Dolmen City that closed at Rs 11.70, down Rs 0.30 with 29.583 million shares.

Unilever Foods and Shield Corporation were the top gainers increasing by Rs 1400.00 and Rs 19.31 respectively to close at Rs 20400.00 and Rs 293.77 while Nestle Pakistan and Rafhan Maize were the top losers declining by Rs 171.54 and Rs 124.00 respectively to close at Rs 5350.00 and Rs 9775.00.

An analyst at Arif Habib Limited said bloodbath session was observed as investors were unable to digest series of outrageous economic indicators. First of all, highest ever monthly trade deficit number of $5.1 billion, exports stood at $2.9 billion while imports were $8.0 billion. Secondly, expectation of higher interest rate increase in the upcoming monetary policy as 3M cut-off T-bill yields increased by 229bps to 10.79 percent, 6M at 11.50 percent and 12M at 11.51 percent. Lastly, expectations of higher CPI number next month due to low base effect and further devaluation of Pak rupee. Mostly stocks closed on their lower circuits.

Sectors contributing to the performance include Banks (down 360 points), Cements (down 314 points), E&Ps (down 240 points), Technology and Communications (down 212 points) and Fertilizers (down 204 points).

BR Automobile Assembler Index lost 196.77 points or 2.28 percent to close at 8,443.68 points with total turnover of 3.858 million shares.

BR Cement Index plunged by 453.28 points or 7.41 percent to close at 5,661.17 points with 43.606 million shares.

BR Commercial Banks Index decreased by 347.3 points or 3.41 percent to close at 9,852.17 points with 21.560 million shares.

BR Power Generation and Distribution Index declined by 283.06 points or 5.07 percent to close at 5,297.51 points with 15.564 million shares.

BR Oil and Gas Index fell by 191.92 points or 5.08 percent to close at 3,582.42 points with 20.233 million shares.

BR Tech. & Comm. Index closed at 3,609.84 points, down 281.87 points or 7.24 percent with 67.613 million shares.

“Bloodbath was witnessed at the bourse as the KSE-100 Index nosedived to an intraday low of negative 2,282 points,” Muhammad Mubashir at JS Global Capital said. The expectation of further monetary tightening and an expected all-time high current account deficit sparked panic selling across the board, he added.

Top volume contributors were WTL (down 8.2 percent), DCR (down 2.5 percent), BYCO (down 9.3 percent), UNITY (down 7.5 percent), GTECH (down 3.8 percent) and MLCF (down 7.5 percent).

Copyright Business Recorder, 2021