Lahore - The local stock during the week continued to plunge amidst incessant foreign selling and week local sentiments, as the KSE-100 index closed down 2.6 percent weekly. Skepticism over key triggers on the macroeconomic front such as CPEC and PKR/US$ parity continued to spook investor sentiments. Pressure in the regional stock markets post Turkey-Russia disaster and negative news flow pertaining to imposition of new taxes also hampered market activity. Furthermore, volatility in oil prices also continued on reports of increasing supply in the global markets and speculations over the outcome of upcoming OPEC meeting. As a result, market tumbled with low volumes and across the board selling in index heavyweights such as cements, banks, oil & gas (volatile oil prices) and fertilizers. Activity in index heavyweights was visible given 0.6 percent WoW increase in average traded value despite 18 percent WoW decline in average traded volumes at the bourse.

Experts said that foreign selling, futures roll-over and lack of trigger in the market dragged the local bourse. Resultantly, the market continued its declining trend and closed at 8-week low level.

Average daily volumes declined by 18 percent to 143.3mn shares while traded value increased by 1 percent to Rs6.6 billion/US$63.0mn. Foreigners were net sellers this week with selling of US$13.1mn, taking month-to-date selling to US$44.9mn. Major selling was seen in Banking and Chemicals sector with net selling of US$6.0mn and US$5.7mn, respectively. On a sector level, Support Services increased by 16.5 percent over the week followed by Multi-utilities, Leisure Goods, Health Care Equipment & Services and Beverages rose by 3 percent-3.4 percent. On the flipside, Engineering, Technology & Hardware Equipment, Forestry and Household Goods declined by 7.9 percent, 6.1 percent, 6 percent and 4.8 percent, respectively.

State Bank of Pakistan (SBP) maintained the policy rate at 6 percent in its monetary policy decision on Saturday. Improving macroeconomic indicators, like low inflation (1.7 percent in 4MFY16 vs 7.1 percent in 4MFY15), declining current account deficit (US$532mn in 4MFY16 vs US$1.9 billion in 4MFY15) and increase in private sector credit off take prompted the central bank to maintain its status quo.

In the T-bill auction held earlier this week, Govt. raised Rs131 billion against the target of Rs150 billion. The cut-off yields increased by 8-13 bps as 3-month T-bill settled at 6.39 percent (amount accepted Rs121.2 billion), 6-month T-bill settled at 6.39 percent (amount accepted Rs9.8 billion) while bids for 12-month T-bill got rejected.

As per news reports, Prime Minister Nawaz Sharif has approved new revenue generation measures in order to attain the revenue target for FY16. Measures include imposition of regulatory duty on luxury items, withdrawal of few income tax exemptions and increase in excise duty rates on some items like imported vehicles, cigarettes and refrigerators, etc.

In the period ending 4MFY16, the payments on FDI stood at US$523.7mn compared to the inflow of US$350.8mn. The situation is inverse compared to the same period last year when FDI outflows were US$344.8mn while inflows stood at US$462.5mn. On the same note, the country’s foreign exchange reserves clocked in at US$19.8 billion for last week.

During the week, Asian Development Bank (ADB) and Govt. signed an agreement to provide US$800mn to Pakistan’s power sector. Of the total, US$400mn will be used to install advanced metering infrastructure for power distribution companies across the country, while the remaining will be used for the Sustainable Energy Sector Reform Program.

Experts have foreseen inflation for Nov 2015 to clock in at 2.59 percent, re-surfacing above 2.0 percent mark, compared to 1.6 percent and average 1.7 percent in Oct 2015 and 4MFY16, respectively.

The expected rebound in CPI by +0.5 percent compared to 10MCY15 average of +0.3 percent can be attributed to an increase of 0.7 percent MoM (FY16TD average MoM: +0.1 percent) in food basket (weight: 34.8 percent) and slight uptick of 0.8 percent MoM in Transport basket (weight: 7.2 percent) due to 2 percent-3 percent increase in petroleum prices. Cumulatively, CPI during 5MFY16 will average at 1.8 percent compared to 6.5 percent in the corresponding period last year. Muted trend on YoY basis can primarily be attributed to favorable base effect and weak global commodity prices. With Nov 2015 CPI announcement, the real interest rate in Nov 2015 will likely contract to 3.4 percent, down 120bps compared to 4MFY16 average of 4.6 percent.