Stock market posts lackluster movement

The week ended on March 08, 2024 started on a positive note, with the index gaining 1% on the opening day. However, as the week progressed, profit taking activities ensued, losing some of the initial gains. Nonetheless, by the week's end, the benchmark index managed to maintain an upward momentum, closing at 65,326 points with a gain of 468 points or 0.7%WoW.

With new Prime Minister taking office and issuing immediate directives focusing on engaging with the IMF and addressing privatization matters set an initial positive impetus. With new setup in place the IMF started rolling out new recommendations and is poised to unveil more with the appointment of the finance minister.

Government’s next major task will be to smoothly navigate the second review of the SBA. IMF’ team is scheduled to visit following the formation of the new cabinet, as SBA program is set to expire in April 2024.

The recent decline in cut-off yields for 3-month papers in last T-bill auction hints volatility, suggesting that some players anticipate a rate cut in the upcoming Monetary Policy Committee meeting on March 18.

Remittances for February totaled US$2.25 billion, up 13%YoY and with trade deficit of US$1.7 billion for the month.

Market participation remained subdued, with the daily traded volume averaging 412 million shares as compared to 418 million shares in the earlier week, down 1.6%WoW.

On the currency front, rupee held its ground against the greenback, closing at PkR279.04/US$.

Other major news flows during the week included; 1) Jul-Jan debt during first seven months of the current financial year rose by 6 percent, 2) SBP injected PKR8 trillion to ease liquidity crunch, 3) Bank deposits surged nearly 21%YoY in February on record-high interest rates and remittances, 4) cement dispatches in February fall 19% to 3.26 million tons, and 5) Textile exports hit US$1.41 billion in February, up 20%YoY.

Sector-wise, Transport, Refinery, and Inv. Banks/ Securities cos. were amongst the top performers, while Tobacco, Modarabas, and Textile weaving were amongst the worst performers.

Major net selling was recorded by Companies with a net sell of US$6.8 million. Foreigners absorbed most of the selling with a net buy of US$6.3 million.

Top performing scrips of the week were: NRL, DAWH, CNERGY, PAEL and PSX, while the laggards included: SML, FCEPL, PAKT, MEBL and SHFA.

The upcoming MPC meeting will remain in the limelight. With prevailing consensus of the status quo, the market is likely to remain largely unaffected as this expectation is already priced in. However, if there is any surprise cut, it could unlock funds towards debt-heavy cyclical sectors.

The imminent announcement of the federal cabinet in the coming week holds significance, with progress on the IMF's SBA third tranche as a near-term focal point and a potential positive in sight.

Gold prices to remain on upward trajectory

Gold prices are expected to dip in the near term before climbing to new highs later in the year, peaking at $2,300/ounce (oz) in 2025. This would be driven by further interest rate cuts by the US Federal Reserve and falling US real yields  

According to a report by JP Morgan Research, this would be driven by further interest rate cuts by the US Federal Reserve and falling US real yields  

Following the first cut of the last three Fed cutting cycles in 2001, 2007 and 2019, gold prices have followed an upward trajectory.

The commodity soared to an all-time high of $2,135.39/oz at the end of 2023 after a powerful rally was sparked by central bank purchasing and mounting investor concern over the Israel–Hamas and Russia–Ukraine conflicts, the report said.

“Commodities are unlikely to benefit from core inflation in 2024. Inflation should fall to under 3%, so that, along with properly timing the business cycle, are the two conditions needed to initiate long positions, making the outlook for the sector very tactical in 2024,” said Natasha Kaneva, Head of Global Commodities Strategy at JP Morgan.

“Across commodities, for the second consecutive year, the only structural bullish call we hold is for gold and silver.”

Economic and geopolitical uncertainty tend to be positive drivers for gold, which is widely seen as a safe-haven asset due to its ability to remain a reliable store of value.

"It has low correlation with other asset classes, so can act as insurance during falling markets and times of geopolitical stress."

 

 

Pakistan Stock Exchange gains 531 points

The week ending January 26, 2024 started on a positive note, riding the wave of optimism generated by the IMF's favorable review report. The benchmark index closed the week with gains of 531 points at 63,812.

Following this upbeat start, the E&P sector took center stage over developments on clearance of circular debt amounting to PKR1.2 trillion.

As the week drew to a close, conflicting narratives emerged, creating uncertainty around the viability of the circular debt plan. News reports, citing insiders, presented divergent stories—one suggesting the imminent presentation of the plan to the IMF and another reporting objections raised by the Finance Ministry. This uncertainty contributed to corrections observed in the last two trading days, with the likelihood of rate cuts diminishing.

Although discussions around rate cuts gained traction with reduction in cut-off yields in the last T-bills auction, the specter of persistent inflation, projected at 28% for Jan’23, tempered expectations of any rate cut.

The foreign exchange reserves held by State Bank of Pakistan witnessed a weekly increase of US$243 million. The inflow of US$700 million from the IMF was constrained by debt repayments.

Market participation remained cautious due to uncertainties surrounding the circular debt plan and the impending Monetary Policy Committee stance, with average daily traded volume exhibiting a decline of 16%WoW at 392 million shares from 467 million shares in the earlier week.

Other major news flows during the week included: 1) Pakistan and Kuwait to set up US$1 billion fund and 2) Cabinet body set to okay brown-field refinery policy.

Textile Composite, E&P, and Leather & Tanneries companies were amongst the top performers, while Automobile parts & Accessories, Transport, and Property were amongst the worst performers.

Major net selling was recorded by Foreigners with a net sell of US$22.7 million. Insurance absorbed most of the selling with a net buy of US$9.6 million.

Top performers of the week were: OGDC, ATLH, APL, LCI, and HMB, while top laggards included: HCAR, PTC, GADT, JVDC, PIBTL.

Market outlook hinges significantly on interest rate move scheduled to be announced on Monday January 29. While the status quo has already been factored into the market expectations, any surprise rate cut could likely trigger an immediate rally.

The resolution of the circular debt clearance plan in the upcoming week is anticipated to provide clarity to market participants, especially in the context of E&P stocks.

As the elections draw near, the settling dust is indicative of stabilization and with successful completion is anticipated to inject positive momentum into the market.

Investors are advised to seize every opportunity for the accumulation of blue-chip stocks.

 

Pakistan Stock Exchange benchmark index posts 1.46%WoW increase

Pakistan Stock Exchange (PSX) posted somewhat lackluster movement during the week ended on September 22, 2023. It could be attributed to Monetary Policy announcement scheduled in the middle of the week, amidst dual fuel price hikes during the month. However, the decision of the central bank to keep the rates unchanged was a pleasant surprise.

On the external front, country’s foreign exchange reserves remained relatively flat, ending at US$7.69 billion as compared to US$7.64 billion a week ago. Additionally, the domestic currency continued to strengthen against the greenback.

Globally crude oil prices remained on upward trajectory, with Brent ending the week at US$94.03/bbl. This was largely driven by persistent supply cuts by major producers, namely Russia and Saudi Arabia. China’s economic recovery, provided further impetus.

Average daily trading volumes declined by 13.4%WoW, to 139 million shares, from 160 million shares traded during the earlier week.

The benchmark Index gained 6674 points posting a 1.46% increase in the index.

Other major news flows during the week included: 1) Caretaker setup increased prices of petroleum products, 2) foreign office termed report on Pakistani arms sale to Ukraine to secure IMF bailout ‘Baseless and fabricated’, 3) IMF expressed concerns over diesel smuggling from Iran and advised finance ministry to submit detailed report, 4) T-Bill yields tumbled despite the central bank mopping PKR2.4 trillion in the latest auction, and 5) GST evasion through flying invoices estimated around PKR6 trillion.

Transport, Leasing Companies and Close ended Mutual Funds were amongst the top performers, while Vanaspati and allied industries, Insurance and Automobiles were amongst the worst performers.

Major selling was recorded by Insurance (net sell US$1.3 million) and Brokers (net sell US$1.1 million).

Individuals and Other organizations absorbed most of the selling with a net buy of US$2.3 million and US$1.1 million respectively.

Top performing scrips of the week were: PGLC, LOTCHEM, UNITY, SCBPL, and GADT, while top laggards included: MUREB, UPFL, ATHL, PIOC, and MUGHAL.

 

Market is expected to be post gains in the coming week, driven by CPI readings alongside further clarity on IMF's upcoming review.

However, in the near term, appreciating PKR alongside expectations of higher remittances during September 2023 are expected to keep investors optimistic.

Overall, analysts continue to advise a cautious approach while building positions, with investments only focused on dollar-driven and high dividend-yielding companies.

 

 

Pakistan stock market closes week flat

The PSX‐100 index snapped its ten‐day winning streak during middle of the week ended 11^th March 2016 and closed at 32,669 levels, up 0.70%WoW. Overall, activity at the market showed sharp recovery, where average traded volumes for the week ascended to 175 million shares as compared to 135 million shares a week ago.

Key news flows guiding the market included: 1) ECC of the Cabinet approved increase in withholding tax on banking transactions for non‐filers to 0.4% from 0.3% and deferred the approval of Auto Policy for more consultation, 2) NTC rejected petition of PSM for imposition of antidumping duty on import of iron ore and steel products from China, 3) National Assembly Standing Committee on National Food Security and Research recommended 60% excise duty on the import of dry milk to promote local dairy sector compared to the current rate of 30 percent, 4) MoF and the MoPNR gave the go‐ahead the Ministry of National Food Security and Research to frame policy allowing urea import by the private sector, while the NA Standing Committee on Industries and Production also directed NFML to import urea in order to curb domestic prices, 5) ISL inaugurated its capacity expansion of over 500,000MT of which 400,000MT can be galvanized at its state‐of‐the‐art steel complex in Karachi and 6) DPC approved around 12 applications envisaging an increase of up to 8% in the prices of the drugs concerned and deferred the issue of reduction in prices of innovator drugs.

Scrips that led the bourse included PTC, EFOODS, FFBL, PPL and AICL, while laggards were PSMC, HBL, UBL, APL and AKBL. Foreign participation witnessed marked improvement this week, where net foreign inflows for the week amounted to US$4.1 million as compared to net selling of US$1.6 million in the week before.

The market is expected to see consolidation around current levels where volatility can emerge from uncertainty in global oil price movements and regional flow trends. Upcoming key events include monetary policy review later this month, where State Bank of Pakistan is likely to maintain status quo due to expectations of higher inflation. This would bode well for banking sector which can gain traction as a 50bps hike in rate in September ’16 is being talked about. Data pertaining to US oil inventories and the possibility of an OPEC meeting may keep oil prices on upward trajectory, flowing through to the domestic Oil & Gas sector. However, many analysts remain skeptical about any consensus due to Iran’s likely agreement to freeze production at January’16 levels.

Despite a number of challenges faced during CY15, UBL was able to post decent earnings growth of 11%, with profit growth being a function of strong NII growth (+23%YoY) and capital gains utilization (+57%YoY). Going forward, analysts expect earnings growth to slow down to 4%YoY during CY16 where: 1) upcoming PIB maturities and lower banking spreads are making way for tighter NIMs and 2) continued risk of further deterioration in international book in the light of the global commodity slump will be key factors to be kept in mind. That said, UBL's sheer strength in terms of diversification of income streams (non‐core income makes 31% of total income), ability to grow loan book (already mandated for infrastructure projects) and sizable capital gains backlog are likely to provide support to earnings. UBL remains the most attractively priced scrips within the banking sector considering its size and superior ROE profile. Price performance however remains hinged upon the reversal of interest rate cycle that is likely to rejuvenate interest in the sector.

According to the latest dispatches data, cement demand has started to pick up where dispatches grew to record levels during February'16 as compared to a month ago. Pick up in domestic construction activity and respite in exports slump were the key highlights. As a result, cumulative growth rate of dispatches improved to 7.7%YoY during 8MFY16 from 6.4%YoY growth during 7MFY16. Companies outperforming the industry during the month included FECTC, FCCL, KOHC, PIOC, DGKC, and MLCF, while LUCK and ACPL remained underperformers due to continued fall in exports. On cumulative basis, KOHC, PIOC and FCCL continued to outpace the industry while LUCK and ACPL continued to face problems on account of failure to divert lost exports (South Africa/Iraq) to other markets. Domestic demand is expected to continue to grow at a fast pace at least during the remainder of current fiscal year on account of record level growth in PDSP spending and construction related private sector credit. Expected normalization of exports from FY17 and initiation of construction work on CPEC projects may further surprise with double digit growth rate in the medium term. Due to strong fundamentals, analysts continue to maintain an Overweight stance on the sector where their top picks include LUCK and DGKC on account of expansion to catch up with anticipated rising domestic demand.

Automotive sales during February ’16 declined to 15,873 units, whereas production figures mimicked this trend. Cumulative 8MFY16 sales/offtake moved by 121,934/121,735units, while 2MCY16 figures showed signs of exhaustion when compared to last year's exorbitant rise in sales/production for 2MCY15 as compared to 2MCY14). All OEMs witnessed monthly sales growth stalling, which may be due to the fading out of 'new registration' effect, while only INDU showcased growth. The 1000cc segment fared better than others in declining offtake, while all other segments posted declines, following the phasing out of the Punjab Rozgar Scheme (news reports indicate final deliveries were due in February’16). At current levels analysts express preference for INDU, citing resilience of Corolla sales (now in its 18th production month) and ability to pass on costs.