Independent Power Producers (IPPs) Termination
Renewed concern over the economic outlook with early terminations of contracts among Independent Power Producers (IPPs) stayed thick on Pakistani stocks last Friday. However, while most of the stock market has been in a whirlwind, the local benchmark KSE-100 index moved slightly for the week as the country’s negotiation progress with the IPPs weighs on the investors’ sentiment.
Topline Securities Ltd said the ongoing negotiation process with the IPPs has significantly affected the market dynamics. It said uncertainty about the IPPs is driven by those five IPPs that agreed to an early termination of their PPAs.
KSE-100 Index spent most of the trading day in the red, touching a low of 679 points at 84,774.46 during the session. But buying emerged later to help salvage some losses as the benchmark index closed the session with a small gain of 30.18 points or 0.04%, closing at 85,483.40.
This rally in the market was mostly from an upturn in banking and auto stocks, said Arif Habib Corporation’s Ahsan Mehanti, who was optimistic about earnings. The investor confidence had helped in late buying at a time when the buying activity finally saw a surge. “The much-needed boost to the market came in from car sales, which jumped by 25pc y-o-y in September, and strong remittance inflows,” added Mehanti.
The Key positives from PSO, Fauji Fertiliser, Engro Fertiliser, Pioneer Cement, and United Bank together provided necessary support towards the index with a total contribution of 276 points. Meanwhile, the key negatives saw a dip in Hub Power, Lucky Cement, Habib Bank, TRG Pakistan, and Service Industries which took away 327 points.
The trading volume on the stock exchange went up by 11.31% to reach 560.74 million shares, which spells active participation in the market. The traded value fell 6.41%, and it settled at Rs26.12 billion against the previous session. This presents the scenario that while more shares were traded, the overall value of such transactions was less and reflected cautious trading behavior by the investors.
Major trade contributors included Hub Power Company with 58.15 million shares, Pakistan Telecom with 51.35 million shares, WorldCall Telecom with 45.69 million shares, Hum Network with 32.95 million shares, and Kohinoor Spinning Mills Ltd with 25.95 million shares. These companies were traded the most actively and therefore held control over the market movements.
In absolute terms, the maximum share price appreciation was seen in the cases of Nestle Pakistan which went up by Rs153.70 followed by advances of Rs116.35, Atlas Honda by Rs68.36, Atlas Battery by Rs32.22, and Colgate Pakistan by Rs29.49. Shares of these companies performed much better than the closing of the market as a whole.
The other side of the coin was marked by the substantial losses in the stocks of a few companies. Hallmark Company Ltd moved down by Rs120.64, Unilever Foods by Rs88.50, Lucky Core Industries by Rs30.41, Lucky Cement by Rs28.67, and Bhanero Textile by Rs26.73. It can be seen that sectoral troubles and fear factors have marred investor’s psychology.
For instance, foreign investors were net sellers during the session, selling shares valued at about $0.44 million. Thus, such pressure by foreign participants suggested that deep-rooted fears of an unstable Pakistan economic outlook and the impacts of any policy alterations on market conditions are still not enough for domestic players to have the same degree of confidence in stocks listed locally.
Yet, a late-session turnaround in local stocks indicates how much domestic players remain keen to pump money into market declines when these are cautious.
Nothing but the premature termination of IPP contracts appears to have any impact on investor psychology, calling for a rethink of its implications on the energy sector of the country in its overall economic health. While analysts are convinced that cost saving through government renegotiation of IPPs will pay off in the long run, uncertainty realized in the short run could further deteriorate investor confidence.
Negotiations with IPPs in the next weeks might, indeed, take a trend to determine the way of the market. The investors will likely watch carefully what is going to happen in the negotiations and announcements from the government that might settle the future of the energy sector further.
Intermediates like the KSE-100 index closed the day in positive territory despite a volatile market, led by strong performances by the banking sector along with the auto sector that overpowered the force from IPP contract terminations. The late-hour recovery displays the sticking ability of local investors as well as their willingness to seize opportunities despite uncertainty. As the sector continues to respond to changes in the energy sector and broader economic conditions, all eyes will be on the results of the IPP negotiations currently going on and the implications these may have on the landscape of investment.
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