The benchmark PSX‐100 index continued its winning streak of the last two weeks (gained 2,234pts) to close week ended on 13th May at 36,122 points (up 0.41%WoW). As opposed to earlier week the index was able to close above the crucial 36,000 level as investors calibrated portfolios in anticipation of Pakistan's inclusion in the Emerging markets club.
Additionally, the Oil & Gas sector was drive by rising global oil prices. Activity at the market remained buoyed with average daily traded volumes rising to 294.5 million shares from 242.3 million shares last week, up by hefty 23%WoW).
Key news flows guiding the market included: 1) semi‐annual index review for MSCI Equity Indices resulting in the addition of 2 scrips (HCAR and PIBTL) and deletion of 4 (ABOT, BAHL, DAWH and HMB) Pakistani companies into the MSCI FM Small Cap Index, 2) Cabinet Committee on Privatization (CCOP) approving divestment of GoP's residual 40.25% Shareholdings in KAPCO, and sale of shares in Mari Petroleum Company, 3) GoP and Italy likely to sign a G2G deal for the supply of liquefied natural gas (LNG) through an Italian firm Eni, 4) Drug Regulatory Authority Pakistan (DRAP) expected to allow pharmaceutical companies to further increase drug prices (up to 15%) with the commencement of new financial year, 5) fertilizer companies slashing prices of urea by Rs60/bag after revision of gas prices and 6) KAPCO securing an upfront tariff of Rs8.1176/kWh for its coal‐fired project with an installed capacity of 660MW.
Gainers at the bourse were: LOTCHEM, ICI, SNGP, HUBC and EPCL, while scrips losing value were: HBL (‐3.8%WoW), NML (‐3.7%WoW), MLCF (‐2.7%WoW) ABL and FATIMA. Volumes leaders were: DCL, TRG, SNGP and KEL. Foreign participation remained under pressure, with foreigners selling US$12.7 million worth equities during the week against net buy of US$21.2 million last week.
Upcoming FY17 budgetary measures (tentative date of release being 3rd June’16), politically cohesive conclusion of the recent Panama Papers deadlock, and the outcome of the MSCI’s Annual Classification review (announcement scheduled on 14th June’16) remain major upcoming milestones for equity market. Anticipating MSCI classification review, investors are likely to shift interest to scrips that are likely to enter the EM index, namely LUCK, ENGRO, HBL, UBL, MCB and OGDC.
Pakistan successfully completed staff level discussions for the eleventh review under the IMF Extended Fund Facility (EFF) qualifying for disbursement of US$510 million, subject to approval by the Fund's Board. GoP managed to meet all quantitative criteria for the Jan-Mar 2016 quarter where progress on fiscal benchmarks (9MFY16 tax collection target of Rs2.1 trillion met and budget deficit contained to Rs1.0 trillion) is encouraging. With FY16 budget deficit target of 4.3% of GDP close to be achieved, the GoP will now be eyeing further consolidation to 4.0% in the coming budget. As the program draws to a close, the Fund has highlighted need for continued efforts in key reform areas particularly fiscal management, energy shortages and restructuring of loss‐making entities. The last review for the year ending June'16 is expected in August'16 where the analysts expect GoP to comfortably meet all quantitative criteria, likely to lead to disbursement of the final tranche of US$100 million under the program.
The PkR/US$ has depicted commendable stability in the ongoing financial year averaging Rs104.7 reflecting a marginal decline of 0.05%CYTD against the dollar. This has remained a function of: 1) weak dollar dynamics, down 4.65%CYTD, 2) strong foreign exchange reserves countering BoP weakness and 3) ramp up in the FE‐25 import financing facility (1QCY16 average utilization at US$1,438 million as compared to an average of US$749 million for CY15). Over the immediate term experts see the PkR/US$ parity to remain stable, with projection for interbank rate to average Rs106.2 during remaining months of CY16.
That said, pressure on the Rupee is expected to intensify with the start of next financial years (FY17) on account of: 1) higher inflation and potential reversal in monetary cycle and 2) greater Balance of Payment vulnerability to oil price shock where analysts foresee PkR to depreciate up to 4.0% (against earlier expectation of 2.4%) during FY17/CY17 averaging at Rs108.5/Rs110.1. Foreign exchange reserve stability (before repayments start in May'17) is likely to restrict pressures on the PkR in the coming fiscal year.