STOCK MARKET REVIEW: INTEREST RATE CUT, OPENING OF BUSINESSES LIKELY TO GIVE IMPETUS.

Byline: SHABBIR H. KAZMI

The benchmark index of Pakistan Stock Exchange (PSX) closed the week ended 15th May 2020 at 34,008 points, up 2.23%WoW as investors focused on the reopening of parts of the economy and monetary policy announcement. There was an unprecedented contraction in economic activity (LSM down 22.0%MoM in March 2020), but market participants remained undeterred. The announcement of MSCI semiannual review brought fresh wave of interest in PPL and MARI (included in the small cap index, replacing NML and SNGPL).

Other major news flows during the week included: 1) Prime Minister ordering kick-start of construction activities on DiamerBhasha and Dasu Dam, 2) Saudi Arabia announcing to deepen oil cut, 3) OEMs recording zero sales in April 2020 due to lockdown and 4) government announcing Rs50 billion agricultural package that includes Rs37 billion subsidy on fertilizers. In a major announcement during the outgoing week, FEROZ disclosed that its subsidiary BF Biosciences (BFBL) has signed a non- exclusive license agreement with Gilead Sciences for manufacturing and selling Remdesivir - an experimental antiviral drug that is being used to treat coronavirus patients.

Foreigners remained net sellers (US$10.9 million) whereas net buyers were Individuals (US$5.56 million) and Mutual Funds (US $4.97 million). Top gainers of the week were: TRG, YOUW, CHCC, EFUG and FATIMA, while laggards were: IDYM, HMM, PMPK, SNGPL and INDU. State Bank of Pakistan issued Monetary Policy Statement after closure of stock market on Friday, reduced its policy rate by 100bps to 8.0%. This is likely to help sustain market momentum in the coming week where short term burst in leverage plays cannot be ruled out. For a longer term perspective, EandPs look attractive on valuation given potential recovery in oil price as countries move towards easing of lock down. That said, a closer eye has to be kept on a surge in coronavirus cases amid SOPs breach after easing of lockdown, which can push down market sentiments in the coming weeks.

State Bank of Pakistan (SBP) has lowered Policy Rate by another 100bps to 8.0%, which is being termed below market expectations. This is the fourth reduction in Policy Rate by the central bank since 17th March 2020, taking cumulative easing to 5.25% to address the worsening outlook of domestic economic activity in the wake of coronavirus pandemic. The Monetary Policy Committee (MPC) has termed the move cautiously optimistic and...