Disinflation, higher exports, circular debt payment news drive the rally
The KSE-100 Index, a gauge to measure the stock market’s overall performance, reached its highest level in over two and a half years following reports that the government and independent power producers have reached an agreement to clear the power sector’s dues.
Slowing inflation numbers and higher exports in December added to the already bullish sentiments of investors.
Within minutes of its opening the market surged by more than 500 points and broke past 45,000 points, the level last seen in the first week of May 2018. However, some resistance was observed soon after and by mid-day, the benchmark index was hovering at 44,600 points.
“The government is expected to release payments to the power sector, which is driving the energy chain up,” says Raza Jafri, who is head of equities at Intermarket Securities.
The market started 2021 on a bullish note with news reports that the government has agreed to clear outstanding backlog of the power sector’s inter-corporate debt. As a result, oil and gas companies, which are part of the energy chain, lead the rally.
Kot Addu Power Company Limited (KAPCO), Lal Pir Limited (LPL), Nishat Chunia Power Limited (NCPL), Nishat Power Limited (NPL) and Pakgen Power hit their upper limits after their shares rose 7.5% of their opening value. Shell Pakistan also hit the upper circuit while Pakistan State Oil and Pakistan Petroleum Limited rose more than 5% each. Since many of these companies are index heavyweights, when they move up or down, the market moves accordingly.
“Export data for December was good so the textile sector is also performing,” Jafri explained. The stocks of Nishat (Chunia) Limited and Nishat Mills Limited rose 7% and 6.8% in the first half of trading.
Market analysts also attributed the present rally to an overall positive flow of news and improved data. Inflation decelerated to 7.97% for December and exports registered an annual growth of 18.3%.
Last week, the government extended its construction package till December 2021, the IMF allowed Pakistan to delay significant sales and income tax measures, the country’s repayment of $900 million in debts was suspended for six months, and reports of the textile sector receiving export orders for at least six months were some of the news that drove market sentiment and helped the rally, according to AKD Securities.
“The bull cycle is in the early phase because of improving economic and business fundamentals,” Sharoon Ahmed of Elixir Securities said.