Trading at Pakistan Stock Exchange (PSX) remained lackluster for the large part of the week. During the week ended 7th Aptil’17, the benchmark index closed at 48,156 points with average daily turnover during the week falling 37.36% WoW to 155.75 million shares. Volume leaders during the week were: ASL ANL, BOP, BYCO and TRG. Key news flows during the week were: 1) headline inflation for March’17 rising to 4.94%YoY, 2) GoP raising petroleum prices, 3) INDU unveiled investment plan of Rs3 billion for debottlenecking of its paint shop, 4) IMF concluded its consultation with GoP, opining cautious stance on fiscal and external account while maintaining 5% GDP growth target, 5) Commerce Minister hinting disbursal of the first installment under the Rs180 billion textile package shortly and 6) SSGC approved Rs64.9 billion additional gas pipeline development project to transfer 1.2bcfd RLNG from Bin Qasim to Sawan with expected COD October’18. Stocks leading the bourse were: SSGC, INDU, MEBL, LUCK, and HCAR, while laggards were: NBP, NCL, AICL, ENGRO and SNGP. Foreign interest was positive during the week with net inflow of US$9.25 million compared to US$19.04 million net outflow a week ago. With high political uncertainty and delayed in implementation of in‐house financing product, market is expected to remain under pressure. However, commencement of results season may lend some support to the market. On the global front, recent U.S missile attack at Syria escalated tensions in the Middle East can that is likely to push crude oil prices higher, which can lend support to market.
The IMF recently concluded its Article IV staff‐level discussions with Pakistan, adopting a cautious tone on the country's ability to sustain recent macroeconomic gains. While similar to earlier reviews lagging fiscal and reform implementation efforts were counted as potential disruptive factors, looming external account threats also became a highlight. In this regard, the Fund has sharply increased its FY17 current account deficit projection to 2.9% of GDP (1.2% of GDP in FY16) on weak trade dynamics. On the fiscal front, GoP is expected to miss its deficit target of 3.8% of GDP with IMF forecasting the same at 4.1% owing to slow revenue collection (Rs2.2 trillion in 9MFY17 against Rs3.6 trillion target for FY17). Urging fiscal consolidation and greater tax collection, the Fund has also highlighted lack of progress on structural reforms in the energy sector. On a positive side, GDP growth for FY17 is expected to rise to 5.0% as compared to 4.7% for FY16 on CPEC led investment. IMF has appreciated controlled inflation levels, though advising a prudent monetary stance keeping in view fiscal and external risks.
Due to high political uncertainty, Pakistan market witnessed 0.8% MoM erosion during March'17, trimming down its CYTD return to a mere 0.7%. While foreign selling continued unabated during the month (FIPI outflow of US$22.8 million in March'17), participation of local players also remained lean, with volumes coming down by 31%MoM. Buying activity of Mutual Funds came down to around US$19.1 million as compared to US$47.9 million and US$44.1 million in February'17 and January'17). Banks and Individuals sold US$16.1 million and US$35.1 million worth of equities respectively. Barring Textiles, all main-board sectors posted negative returns with the highest decline seen in Cements and the index heavyweights Oil and Gas and Commercial Banks. Going into April'17 is likely to hold key importance in determining the market's direction. In addition, other points of significance include: 1) foreign flow trend a month prior to inclusion in MSCI EM index next month, 2) commencement of results season, 3) preliminary budgetary news flow and 4) inflation number this month to set the tone for interest rate hike during the year.
Upsides in HASCOL are due to superior volumetric growth (CY17‐21 CAGR of 9.7%) outpacing the industry, with requisite CAPEX dovetailing an aggressive retail push (adding 16 pumps per quarter for CY16) and storage infrastructure (planned addition of 350,000MT operational by 1QCY18). In this backdrop, AKD Securities has raise its CY17‐19 earnings by 11%, on the back of revised volumetric growth and increasing long term CPI assumption to 4%. However, with ambitious growth targets, the risks from a volatile oil price environment and associated inventory losses are hard to rule out. Ramping up of supply is also expected to strain liquidity while a commensurate increase in below the line expenses may drag profitability. Compared to listed peers, HASCOL’s books have better liquidity with room available to handle planned CAPEX. At current levels, the market seems to be under pricing growth.