Profit-Taking and Energy Sector Concerns Drag Down Market Sentiment
Profit-Taking and Energy Sector Concerns Drag Down Market Sentiment
On Tuesday, the stock market remained bearish due to profit-taking, primarily driven by mutual fund redemptions and the pressure on energy equities.The cautious tone was further exacerbated by the government’s increasing debt levels and concerns regarding circular debt in the gas sector.
The benchmark KSE-100 Index of the Pakistan Stock Exchange (PSX) reached an intraday high of 116,843.41, a rise of 588.29 points, or 0.51%. Nevertheless, selling pressure caused the index to plummet to a low of 113,792.13, a -2.12% decrease from the previous close.Muhammad Saad Ali, Director of Research at Intermarket Securities Ltd., stated, “Redemptions are driving Profit-taking at some major mutual funds.”
“The news of the diversion of RLNG to residential consumers has driven pressure in energy names, which could result in a new accumulation of circular debt,” he continued.Under the jurisdiction of Sui Northern Gas Pipelines Limited, the diversion of re-gasified liquefied natural gas (RLNG) to the domestic sector increased to 450mmcfd in January 2025, a significant increase from 250mmcfd in December 2024. This increase is anticipated to exacerbate the circular debt in the petroleum sector.
The current average domestic tariff is Rs1,250 per MMBTU, while RLNG is Rs3,600 per MMBTU. This Rs2,350 per MMBTU differential will directly contribute to the increasing circular debt, raising concerns about the financial strain on gas utilities.On Monday, Finance Minister Muhammad Aurangzeb predicted a robust current account surplus for FY25 during a Senate Standing Committee meeting. He also disregarded any desperate measures that could potentially undermine economic stability.
Aurangzeb stated that the balance of payments was strained three years ago because the government applied the development accelerator. However, we will not make the same error in the future, regardless of the current level of duress.The minister disregarded liquidity concerns, stating that there had been no complaints regarding opening letters of credit (LCs) in the past decade. “There is no pressure on the currency, as no foreign company has been prevented from sending profits abroad,” he observed.
Aurangzeb emphasized the substantial investment commitments of major global players, such as Saudi Aramco, the Chinese firm Norinco, and electric auto behemoth BYD, to underscore foreign interest in Pakistan’s economy.On Monday, the State Bank of Pakistan (SBP) announced that the government’s total debt increased by Rs1.452 trillion, or 2.1%, in the first five months of FY25, reaching Rs70.366 trillion as of November 2024. This increase is due to government expenditure exceeding the requirements for external debt repayment and revenue collection.
As of June 30, 2024, the total debt was Rs68.914 trillion. As of November’s conclusion, the debt had increased by 1.8% month over month and 11% year over year (YoY).The domestic debt increased by 3% from July to November of FY25, reaching Rs48.585 trillion, representing an 18% year-over-year increase. In the same period, external debt increased marginally by 0.11% to Rs21.78 trillion, despite a 2.91% year-over-year and 0.5% month-over-month decline.
In conjunction with the government’s increasing debt levels, the energy sector’s pressures have prompted apprehensions regarding fiscal sustainability. As Pakistan prepares for a critical evaluation under the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) to unlock the next tranche of $1 billion in March, these issues have arisen.
The EFF continues to consider the IMF’s proposed levy on gas supplies to industrial captive power plants (CPPs) as a critical structural benchmark.Furthermore, Pakistan is anticipated to receive $20 billion from the World Bank over the next decade as part of its Country Partnership Framework 2025-35.
This financing, subject to approval on January 14, will be consistent with the government’s National Economic Transformation Plan, which emphasizes infrastructure improvement, poverty reduction, and GDP growth.As measured by the Sensitive Price Indicator (SPI), short-term inflation experienced a marginal weekly decline of 0.26% for the week ending January 2, 2025, indicating a slight respite in inflation trends. Nevertheless, inflation persisted at 3.97% on a year-over-year basis.
In the first half of FY25, textile exports, a significant economic driver, increased by 10% yearly, reaching $9.9 billion. This indicates the resilience of one of Pakistan’s most critical sectors in the face of external challenges.The KSE-100 Index closed at 116,255.12 on Monday, a significant decline of 1,331.86 points, or -1.13%, from the previous session’s close of 117,586.98 at the PSX.
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