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Sunday, September 8, 2019

Update: September 08, 2019

KSE100: MoM index had a good start from EMA125 (29500) support and maintaining a green candle with very small lower shadow. Critical resistance is monthly DMA10 (31170). Breaking this resistance could give way to closing above monthly EMA100 which is a strong reversal sign. 

Specific risk factors are worsening financial situation, risk of further currency devaluation. Potential renegotiation or failure of IMF program. Two T-bill auctions on 11 & 25 Sep and one PIB auction on 18-Sep.  These auctions usually cause liquidity drain from the market as investors run a sell-off in equities and shift their capital to risk-free interest-bearing instruments. Sector specific risk are imposition of heavy penalties by SBP on ten major banks which has potential to destabilize entire index. Negotiation failures between FBR and traders to documents trading business. Auto sector tiff with Ministry of Climate change over electric car policies. 

Positive side development includes government initiative to enable murahaba based sharia compliant financing, attract more foreign capital with tax simplifications and undertake reforms for ease doing business in equities market. MoM basis for SEP as per REG market data, mutual fund, foreign corporate, brokers and insurance companies have remained major sellers while Individual and other organization were major buyers. Foreign individual, overseas Pakistani and Banks were minority buyers. Overall, index seems to have entered consolidation phase. 

Minding above picture in wider context, index may post strength in short term, but weakness persist in mid to long term. Facing strong rejection at monthly DMA10 (31170) or failing to hold support at monthly EMA125 could drop the index to next support of EMA150 (27050). There is a real risk of index being exposed to its absolute bottom between EMA175 and EMA200.  We estimate this figure to fall between 25000-24000 points. 

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