During the month of August, the KSE100 index experienced significant downward pressure, resulting in a correction of 3,032 points and concluding at 45,002 points. This marked a noteworthy 6.3% month-on-month (MoM) decline. At the outset of the month, there was an optimistic start driven by news of progress in resolving gas circular debt and refinery policy. However, this positivity was short-lived due to several factors, including the sharp devaluation of the Pakistani rupee, a growing current account deficit, and delays in energy reforms.

Furthermore, a significant development during the month was the long-awaited announcement of the Refining Policy (Brownfield), which promised long-term benefits for domestic players in the sector. Despite this, rampant inflation and news of a potential interest rate hike further eroded investor confidence. Market participation remained lackluster throughout the month, with the daily traded volume of KSE100 averaging 165 million shares, down 12% MoM from the previous month’s average of 186 million shares.

The rupee devaluation during the month had a substantial impact, resulting in a 12.4% MoM reduction in the dollarized market capitalization, which now stands at US$17.4 billion. Additionally, the current account, after a four-month surplus streak, reported a deficit of US$809 million, primarily due to a relaxation in imports. The increase in imports also put pressure on the rupee, which depreciated by 6.6% during the month, closing at PkR305.5/US$.

Moreover, the gap between interbank and open market exchange rates remained in the range of 3-5% during the month, well above the IMF Stand-By Arrangement (SBA) agreement’s recommended threshold of ±1.25%. Foreign exchange reserves continued to decline, with a decrease of US$322 million during the month, leaving the State Bank of Pakistan’s reserves at US$7.8 million as of August 25th.

Inflation remained high, with the Consumer Price Index (CPI) for July 2023 reaching 28.3%. This elevated level is expected to persist in the coming months, driven by increases in fuel and electricity prices. Petroleum prices also surpassed the PkR300 mark, with petrol and high-speed diesel (HSD) currently priced at PkR305/312 per litre, respectively.

In terms of sector performance for the month, the Leasing sector emerged as the top performer with a 10.6% MoM gain, while the Auto Parts sector also fared well with a 4.7% MoM gain, driven by eased import restrictions and better-than-expected quarterly results. Conversely, the OMC sector faced significant losses, leading the downward trend with a cumulative monthly loss of 15.1% MoM, primarily due to ongoing issues related to receivables. Other sectors that posted notable losses included Chemical (down 14.8% MoM), Refinery (down 14.6% MoM), and Power (down 14.4% MoM).

Regarding investor activity, Insurance and companies were the most significant buyers with net purchases of US$36.4 million and US$17.9 million, respectively. Foreign investors remained bullish on the market, contributing to a healthy net inflow of US$12.9 million. Their focus was primarily on the Banking, Exploration & Production (E&P), and Technology sectors, with net inflows of US$6.4/5.6/3.8 million, respectively. Conversely, Banks and Mutual Funds were the largest sellers in the market, with net sales amounting to US$21.5 million and US$20.0 million, respectively.

Looking ahead, the market’s performance will be influenced by several factors, including the outcome of the next Monetary Policy Committee (MPC) meeting on September 14th, the upcoming review with the IMF in October, and developments related to energy reforms and circular debt.

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