PSX: caution back in control?

If events in the outgoing week have not been able to boost investor sentiments, then what will? Billions of dollars of investment promise from Saudi Arabia, and the recovery in current account was expected to have a positive impact on the market. Instead the benchmark KSE-100 slipped about 1.2 percent last week.

Brokers mainly attribute this weakness to three things: delay in the passing of the supplementary finance bill in the National Assembly; mediocre corporate results of certain heavy weight index stocks and the slapping of 200 percent duty by India on cement imports from Pakistan in the wake of the Pulwama attack, which weighed on investors’ minds along with the FATF meeting.

Delays in the passing of the finance bill haven’t ever really eroded sentiments, sans one or two exceptions, which clearly doesn’t apply in this case since the second mini-budget wasn’t exactly a budget per se. It was a tweaking exercise that will likely be passed in any case. The mediocre corporate results were indeed a disappointment in some cases, such as Hubco’s dividend disappointment. But others were not a disappointment – such as growth in HBL’s net profits - but largely in line with analysts’ expectations.

The Indian episode is indeed a dampener. But considering that foreign investors, who are supposed to be more reactive to security risks, were net buyers last week, perhaps the security risks have been overplayed. Or it may be so that foreign players are eyeing Pakistan’s attractive valuations relative to the region instead.

The real risks and uncertainties that continue to dampen sentiments are the fiscal concerns (where recently released 1H data was quite a reality check) and sub-par revenue growth amid a lack of clarity over the timing and the conditionality of the IMF programme. (See also BR Research, The fiscal headache, February 21, 2019)

Until there is clarity on the fiscal and IMF fronts, the market is likely to remain weak and will struggle to cross its 500-day moving average. However, smart money that has deep enough pockets to average-out their stock purchase prices, and enough holding power will likely continue to sniff out values for long term accumulation. For the rest, the drama might be a tad unbearable. (See also BR Research Game of nerves: the plot thickens, January 21, 2019).