After starting the week on a shaky foot, market remained volatile as investors preferred realizing profits due to uncertainty around Panama hearing, law and order concerns and stories about unethical conduct of some of the brokers. During the week ended on 24th February, the benchmark index of Pakistan Stock Exchange (PSX) closed almost flat at 49,008 levels. Average daily trading volume at the bourse tapered to 322 million shares, down by 11.6%WoW. Foreign flows also declined with net outflows for the week rising to US$4.8 million as compared to inflow of US$4.2 million a week ago. Major news flows during the week included: 1) current account deficit for January’17 rose by 16%YoY to US$1.19 billion taking 7MFY17 cumulative deficit to US$4.71 billion, up 90%YoY, 2) GoP raised Rs59.7 billion through PIB auction with banks’ biding for Rs115.2 billion but cut off yields remained largely flat, 3) National Assembly Standing Committee was informed that the GoP is considering a subsidy package for farmers in the FY18 Budget, 4) Chairman of the PSX’s Divestment Committee stated that the exchange would be listed through an IPO by the end of June this year, 5) PSMC announced expansion plans for producing 100,000 units, with total planned outlay of US$460 million and 6) KPMG Taseer Hadi – Independent Consultants for SNGPL and SSGC – released their report suggesting UFG benchmarks for the utilities at 5%. Top performers at the bourse were: HMB, MTL, PIOC and SSGC, whereas laggards included: HASCOL, DAWH, AGTL, and ASTL. As the result season approaches its end, the market is likely to retain focus on developments around Panama‐gate case. Uncertainty around the time frame for the announcement of the decision can keep investors on edge, inducing greater volatility in the market. Additionally, February’17 CPI inflation to be announced next week is expected to be higher than last month and will help to firm expectations of a higher interest rate trajectory going forward.
External trade trend witnessed improvement during January'17 with exports rising to US$1.78 billion (up 3.0%MoM/0.7%YoY), marking reversal from the consistent monthly downward trend seen this year. Textile sector, which constitutes more than 60% of country's exports picked some pace and rose by 2.7%MoM to US$1.06 billion during the period under review driven by broad‐based recovery in both low value (+7.8%MoM) and value‐added segments (+1.0%MoM). However, on a cumulative basis, 7MFY17 textile exports are still 1.5%YoY lower as compared to that of US$7.23 billion for the corresponding period last year. Going forward, analyst at AKD Securities expects textile exports to largely remain under pressure due to: 1) demand side bottlenecks with weak Chinese demand outlook and concerns of an economic slowdown in the EU following Brexit and 2) lower currency competitiveness amid sharp depreciation in regional currencies against US$. That said, the recently announced export incentive package worth Rs180 billion with the textile sector having the lion's share is expected to enhance export competitiveness over regional countries remains a key near‐term trigger for the sector. Moreover, encouraging cotton arrivals to date (up 10.63%YoY) to 10.634 million bales) is expected to reduce cotton shortfall this year.
Large Scale Manufacturing (LSM) during 1HFY17 grew by 3.90%YoY buoyed by a jump in December'16 by 7.04%YoY on seasonal trends. However, this remained slightly lower as compared to 1HFY16 owing to slower than earlier growth in the Auto sector. However, recovery in the Food sector lent support to the LSM index. While some upwards push is expected in the coming months on periodical trends, analyst expects the trend to normalize over FY17. However, ongoing expansion plans can lift the index higher than previous year. This remains inadequate for achieving FY17 GDP target of 5.7%.
Pressures on rupee seems more imminent due to 7.3%MoM increase in trade deficit emanating from a 6%MoM decline in remittance inflows during January’17. Consequently, analysts expect sharper deterioration with CAD rounding off at 1.85% of GDP in FY17 on rising trade deficit and declining remittance. This adds to already worsening foreign exchange reserve position as foreign debt flows (net of repayments) in 7MFY17 at US1 billion have been lower than US$1.3 billion in the corresponding period. Resultantly, import cover on SBP held reserves now stands at 4.6 month compared to 5.4 month at end FY16.