Interest rate hike expected, mini-budget could haunt: PSE


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After closing last week on a positive note, the expected hike in interest rates and the proposed mini-budget could haunt the Pakistan Stock Exchange in the week starting today (Monday).

Other negative factors for the market remain the increase in the current account deficit, the increase in core inflation and the depreciation of the exchange rate, which can keep investors at bay; however, the market may surprise if the key rate hikes less than expected (150bp).

The State Bank’s Monetary Policy Committee (MPC) will meet on Tuesday, December 14 for an upward revision of the key rate.

Yields on three-month Treasury bills at a December 1 auction jumped 228 basis points as the government only accepted bids worth Rs 504.3 billion in three deadlines, against a target of 750 billion rupees.

This clearly indicates to what extent the policy rate can be revised upwards. Rising interest rates may encourage investors to opt for safe-haven securities instead of trying their luck on the stock market.

The government reportedly finalized a mini-budget involving budget adjustments and spending cuts worth around Rs.6 trillion as part of a deal with the International Monetary Fund (IMF). A 2021 Tax Law Amendment Bill (Fourth) to abolish nearly 100 tax exemptions as the standard 17% General Sales Tax (GST) rate would become applicable with parliamentary approval.

The government is preparing to withdraw the GST exemptions and apply a standard rate of 17% on the importation of cellphones, computers, silver / gold, various jewelry items, remelted scrap metal, LPG and many other products. The government is taking this step to pave the way for IMF board approval in mid-January to release a $ 1 billion loan.

Expecting good from the worst, the finalization of these two stages, including the hike in the key rate and the presentation of the mini-budget, will at least make it possible to clean up and give a clear direction to the market while the market has been under pressure since. a few weeks since these two factors. Again, the prices of some blue-chip stocks are snapped well below the decline in the index level due to uncertainty, which always proves more fatal for stocks than tough economic measures. In addition, rising interest rates can help the rupee to fall and stop inflationary trends.

The KSE-100 index gained 163 points (+ 0.38%) to close at 43,232.83 points on a weekly basis. At the sector level, positive contributions come from oil and gas exploration (320 points), technology and communication (257 points), food and personal care (32 points), chemicals (29 points) and insurance (10 points).

Sectors that contributed negatively to the benchmark were commercial banking (187 points) and cement (112 points).

On the equity side, the positive contributors are TRG Pakistan Ltd (208 points), Pakistan Petroleum Ltd (155 points), Oil and Gas Development Company (101 points), Systems Ltd (49 points) and Mari Petroleum Ltd (34 points). At the same time, the negative contributors were Engro Corporation (66 points), Habib Bank Ltd (64 points) and United Bank Ltd (44 points).

Foreign sales slowed in the outgoing week to $ 1 million from a net sale of $ 62.84 million the week before. Significant sales were recorded in cement ($ 1.2 million), fertilizers ($ 0.5 million) and exploration and production ($ 0.3 million).

Locally, purchases were reported by “other organizations” ($ 3.9 million) followed by businesses ($ 2.1 million) and individuals ($ 1.3 million). Average daily volume reached 204 million shares, down 36% from a week ago, while average traded value stood at $ 42 million, down 54% on a weekly.

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