Benchmark Index of Pakistan Stock Exchange continued its upward move and touched a high of 43,000 points for the week ended 25th November 2016. The gain of 625 points (1.59%WoW) was primarily led by E&P companies (on the back of 4.25%WoW increase in crude oil price), cements (on receding coal prices and expectation of robust dispatches) and textiles (on expected announcement of incentive package for the industry).
Average daily traded volume inched up by 4%WoW to 475 million shares where volume leaders remained second tier scrips such as PACE, BOP, PIAA, SMBL and ANL. Leaders during the outgoing week included NCL, NML, HASCOL, ASTL and EPCL, while laggards included SSGC, MEBL, INDU, AKBL and HBL.
Following were the key developments during the week: 1) ECC approving reduction in gas prices for industrial consumers by Rs200/mmbtu, 2) PIA concluding a financing facility of US$130 million, 3) T‐bills yields in the recent auction remaining flat, 4) Pakistan securing an additional US$8.5 billion of investment from Beijing as part of the countries' joint energy, transport and infrastructure plan and 5) Summit Bank Limited announcing to initiate due diligence of Sindh Bank Limited for potential merger/acquisition.
The market is expected to remain volatile, taking direction from the following events in the upcoming week: 1) Panama case hearing scheduled on 29th November, 2) Monetary policy Statement to be issued on 26th and 3) OPEC’s meting by the end of this month to finalize output deal where inability of the producers to reach an agreement can keep Oil & Gas sector under pressure. Additionally, the recent trend of rising coal prices may keep cements under pressure while textiles are expected to remain in limelight upon expected announcement of the export incentive package.
After touching the year's high last month (4.2%YoY), CPI inflation is projected to revert back, coming in at 3.82%YoY during this month, implying a limited 0.21%MoM increase owing to muted rise in food inflation (0.2%MoM) and a high base effect. On the other hand, NFNE Core inflation is expected to inch up slightly to 5.3%YoY compared to 5.2%YoY in October this year. Consequently, 5MFY17 CPI/NFNE Core inflation average is expected at 3.91%YoY/4.87%YoY compared to 1.87%YoY/3.79%YoY in the corresponding periods last year. Inflation is expected to tread higher during the rest of the fiscal year, with projection for FY17 CPI inflation at 4.8%YoY, which eliminates room for further rate cut in the upcoming MPS. Moreover, rapid deterioration in current account strength (up 63%YoY in 4MFY17) and rising concerns on global front in the form of dollar and crude oil prices gaining strength are expected to keep the central bank cautious.
Inching up, current account deficit for October’16 was recorded at US$381 million as compared to US$174 million for September'16. Resultantly, 4MFY17 deficit accumulated to US$1.76 billion, higher than US$1.08 billion for the same period last year. The weakness has been led by slowdown in remittance flows and rapidly expanding trade deficit. Foreign investment dynamics have been unpromising so far in FY17, where FDI net inflows were reported at US$316 million ‐ half of US$610 million in 4MFY16. Relief has come in the form of the recent US$1.00 billion Sukuk issue, which has taken 4MFY17 total foreign investment to US$1.4 billion as compared to US$0.95 billion. Going forward, current account weakness is expected to continue where analysts reiterate their projection for deficit at 1.7% of GDP driven by trade deficit and slower remittance inflows.
Following below expected 3QCY16 earnings, AKD Securities revisited its investment case for national Bank of Pakistan (NBP), revising projected CY16/CY17 earnings down by 8.2%/7.6% on account of a higher than expected sequential downtrend in the bank's income streams, both funded and non‐ funded. While interest income was understandably lower on account of PIB maturities during the quarter, brokerage house has expressed its concerns regarding the decline in non‐interest income that was down 20%QoQ despite higher gains utilization. In this regard, fee income was down 28%QoQ followed by 34%QoQ decline in other income. While still appreciative of the bank's concerted efforts in improving its asset quality, higher provisions during the quarter were on account of changes in regulations on consumer financing by SBP (Rs783 million booked in this regard) along with seasonal impact of agri‐financing. Gaining 27%CYTD, the market has been quick in acknowledging the bank's fundamental turnaround. Valuation set is attractive and has room to expand once sentiments further improve on: 1) interest rate cycle reversal drawing close and 2) multiple re‐rating upon formal MSCI inclusion.