Pakistan stock market plagued by declining oil price

Like other international markets, Pakistan stock market once again plunged into negative territory. During the week ended 12^th February PSX‐100 index closed at 31,464 points (down 3.12%WoW) completely eroding the gains made a week ago. Market volatility was led by anxious investors opting for profit‐taking amid continued selling by foreign investors. During the week under review foreign outflows were recorded at US$17.2 million against US$2.2 million outflows recorded a week before.

Activity at the market failed to recover, where average traded daily volumes for the week declined to 141 million from 144 million shares. Key news flows driving the market included: 1) the GoP signed a 15-year agreement to import up to 3.75 million tons/year of LNG from Qatar at a price of 13.37% of Brent, to be imported by PSO, 2) Baluchistan government announced lifting‐off the ban on new projects of oil and gas exploration across the province and started negotiations with PPL, OGDCL and some international exploration companies, 3) the GoP borrowed over Rs116 billion at the rate of 6.10% through auction for 3‐year Fixed Rental Rate GoP Ijara Sukuk and 5) GoP directed OGRA to allow recovery of proposed Rs101 billion commercial loans to be taken by gas utilities from consumers in lieu of building pipeline infrastructure.

Leaders at the bourse included POL, SNGP, AGTL, and DAWH. The laggards were OGDC, FATIMA, HCAR, BAFL and EFERT. As earnings season gaining momentum the prominent companies scheduled to announce financial results include PSO, OGDC, PPL, DGKC, LUCK, HUBC and ENGRO. Analysts expect volumes to recover in anticipation of stronger corporate profitability. Although, persistent foreign selling continues to mar the sentiments a rally in regional markets can also bring some respite to the local market.

Pakistan’s biggest integrated electric utility K-Electric (KEL) is expected to release its 1HFY16 financial results shortly. According to a forecast the company is expected to post profit after tax of Rs15.4 billion (EPS: Rs0.56/share) reflecting an increase of 17%YoY, while 2QFY16 earnings are expected at Rs8.9 billion (EPS: Rs0.32/share), 14%YoY lower than levels seen last year. Profit before tax for 1HFY16 is expected to rise to Rs14.4 billion, up 80%YoY, aided by: 1) a 1.4% reduction in T&D losses to 22.4% during the period under review, 2) decline of 40%YoY in the cost of purchased electricity (currently at Pkr5.8/KwH) and 3) a 29%YoY reduction in financial charges. Despite these improvements, analysts caution about regulatory hurdles as dampeners to long term self‐sufficiency of supply (shifting to coal) and approval of major agreements (Multi‐Year Tarriff, Power Purchase Agreement). Prominent triggers to look out for are: 1) greater than expected reduction in T&D losses from pre US$500 million T&D revamp plan, 2) continuous decline in cost of purchased units, as FO prices fall, reducing the burden of T&D losses born by the utility and 3) significant headway on 700MW coal fired power plant to be set up with China Datang Corp, the land for which has been procured.

Total auto industry sales were recorded at 21,717 units, benefiting from the 'January Effect' prevalent in the industry. Cumulative, 7MFY16 sales remained robust, at 133,437 units increasing by 57%, supported by strong growth in offtake from PSMC (83,188 units sold, growing 90%YoY) and INDU (36,448 units sold, rising 24%YoY). Segment‐wise sales growth was led by the 800 and below 1000cc variants with sales growth of 85%YoY for 7MFY16 (44,594 units sold), followed by the 1000cc segment rising 42%YoY (14,145 units sold) and the 1300cc and above segment increased by 22%YoY (49,168 units sold). These trends in segment‐wise growth have flowed into the OEM's dominating each segment. A historical trend analysis of the past 10 years showcases January a good month.