Saturday, 3 September 2016

Pakistan market closes below 40,000 despite higher turnover

The week remained a cliffhanger for markets, coming off of the high-water mark of 40,000 as result announcements were met with a passive reaction from market participants. The index closed the week at 39,465 points, down 1.2%WoW. Expansion plans in the cement sector; strong order book for new model launches accompanied by rumors or planned capacity enhancements in autos and building materials kept select scrips in the limelight.
Healthy uptick of 60.2%WoW in volumes, average daily turnover for the week rose to 371.8 million shares as compared to 232 million shares a week ago. This was a reflection of heightened activity during earnings seasons. Volumes leaders remained retail favorites in the mid and small cap categories with solid average daily turnovers from: KEL, BYCO, DCL and DSFL. Gainers at the bourse were: SHEL, HCAR, ASTL and PSMC. Conversely laggards were: PIOC, MLCF, LUCK and CHCC.
In a triggerless backdrop, market participants may retain a downside bias to political developments, where bearish sentiment may trigger a spell of consolidation marking this September. Event risk in the form of macro developments including oil prices (OPEC ministers meeting in September and November), USFOMC's meeting (to possibly trigger another rate hike) and the SBP's rate decision (expected by end of the month) have the potential to spill over into markets.
The MSCI hype fizzled out with the market returning 0.02%MoM in August 2016 against an average 4%+ returns in the previous two months. Unable to sustain at 40,000 level during the month, the index retraced from its alltime high of 40,057 points, to close at 39,810 levels. Foreign participation, took a back seat with net outflow of US$20.4 million versus inflow of US$23.2 million in July 2016. While volumes for PSX100 constituents remained flat, increased participation in small cap stocks bolstered overall volumes by 36.5%YoY with KEL, DCL and DSFL leading the volumes chart. Result season guided market sentiments predominantly with interest coming in sectors depicting above expected earnings announcements. In terms of performance amongst the main board, Automobiles, Textiles, Oil & Gas and Commercial Banks superseded the rest while Cements and Fertilizers lagged behind. Going into September 2016, analysts believe the market will continue hovering around the current level with political risks coming to the fore. Globally, key events to track are: 1) US FOMC meeting scheduled on 20-21 September potentially impacting the dollar and consequently regional equities and 2) an informal OPEC meeting on 28th September to discuss production freeze on oil.
Recently released NFDC numbers revealing higher fertilizer offtake during July 2016, where total fertilizer sales was 1.1 million tons against 618000 tons sold in July 2015 (up 78%YoY/58%MoM), a clear reflection of the subsidy package announced in budget FY17. In tandem, urea sales have also increased significantly by 66%YoY/32%MoM to 777,900 tons during the month under review. However, on a cumulative basis, fertilizer sales remained dismal during 7MCY16, as total fertilizer and urea offtake was 3.96 million tons (down 15%YoY) and 2.60 million tons (down 22%YoY) respectively. Similarly, DAP sales also remained strong during the month under review, registering an increase to 199,000 tons, of which imported DAP offtake amounted to 131,000. EFERT and FATIMA have come out as clear winners with urea sales for both recovering significantly.

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