Stock Review.

Byline: Shabbir Kazmi

Index remains under pressure as confusion mounting over economy slowdown

The benchmark index of Pakistan Stock Exchange (PSX) mostly remained under pressure as confusion is mounting amongst investors over slowdown of economy. Despite expectations of IMF negotiations to conclude soon, investors fear IMF demands including flexible exchange rate and reform agenda implementation would bring further inflationary pressure and demand slowdown. Invest record remained cautious in short run as risk of further monetary tightening and inflationary pressure would keep upside in check.

The remaining in limelight were Banks on interest rate hike increase, EandPs on attractive valuations, Textiles on likely benefit from higher exports, rupee depreciation and Fertilizers on reduction in GIDC, seasonal demand, better farmer economics and supply constraints of urea.

The total liquid foreign exchange reserves held by Pakistan were reported at US$15,709.6million on 15th March 2019. The break-up of reserves was: 1) foreign reserves held by the State Bank of Pakistan (SBP) at US$8,838.7 million and 2) net foreign reserves held by commercial banks at US$6,870.9 million. During the week under review, SBP received US$1,000 million from UAE as placement of funds. After taking into account outflows relating to external debt servicing and other official payments, reserves held by SBP increased by US$716 million.

Reportedly, despite facing enormous economic challenges, Imran Khan led government seems to have gained ground. The key issues facing the government are: 1) delay in striking a deal with International Monetary Fund, 2) high inflation, rising poverty and unemployment. The factors creating hopes are improving macro indicator signifying enough political capital to initiate the reform process. It is believed that the incumbent government policy to protect the marginalized/lower income population from the price hikes has played a key role in maintaining its popularity. The prevailing conditions give confidence that the government can comfortably kick start the reform process to address key macro and energy sector challenges. From policy perspective, concrete action to tame fiscal woes remains missing, with rate hike adjustments in energy chain also falls short.

With fiscal side of the equation remaining largely unaddressed, analysts expect the next policy thrust to be on the same front. Forthcoming FY20 budget would be key checkpoint in this...