Pakistan equity market driven by rising oil prices

During week ended 18th March benchmark PSX-100 Index gained 411 points or 1.126%WoW to close at 33,080 points. The rally was driven by two factors: 1) corporate restructurings (divestments in EFOODS, EFERT, and acquisition of NIB) and 2) crude oil prices registering upward move. Material disclosures of corporate actions by ENGRO were received positively by investors. Foreign participation failed to sustain the trend (US$4.1 million inflows) witness a week ago where net outflows during the week amounted to US$7.6 million.

Key news flows for the week were: 1) US Fed maintained interest rate policy, while expressing concerns about global economic outlook adopting a dovish stance on future rate hikes, spurring performance in emerging market equities, 2) GLAXO announced details of its Sindh High Court approved divestment of its Consumer Health Care operations, with investors getting 10 shares for every 3 shares held in the parent entity, 3) HTL expressed its intention to apply for an OMC license from OGRA expanding into the retail fuels segment, 4) Auto Policy dominated news reports with conflicting details regarding greater incentives for domestic assemblers and, 5) National Assembly passed the Futures Market Bill, 2015 and Financial Institutions (Recovery of Finances) (Amendment) Bill, 2015 in a bid to promote investment avenues and facilitate recovery of bank loans.

Stocks exhibiting strong performance during the week included PPL, INDU, UBL and 4) KEL; conversely laggards were BAFL, HMB, MEBL and HCAR. Average daily turnover was down by a mild 4.76%WoW closing at 166.8 million shares. The volume leaders were NIB, KEL, BOP and TRG.

Approval of the Auto Policy (which has experienced its fair share of delays) may spur performance if planned incentives to current players are enacted. Strengthening commodity prices boosted largely by weakness in the US$ (Dollar Index down 1.8%WoW) are expected to follow through in the coming week. The central bank is scheduled to issue Monetary Policy Statement next week where a further easing remains unlikely.

Despite tapering input costs improving liquidity, burdensome overdue receivables in the power sector continue to plague HUBC's balance sheet, signified by: 1) Rs66.9 billion in overdue receivables from WAPDA & NTDC, down 18.6%YoY but up 6.4%QoQ, 2) increased reliance on short term borrowing where a 46.4%YoY and 57.3%QoQ jump in short term borrowing was witnessed during 1HFY16 and 3) decline in receivables failing to keep pace with declining revenues, raising Days Receivables to 271 days vs. 211 days for the corresponding period last year. On the other hand, a slide in payables (overdue payables to PSO recede 26.5%YoY, rising 6.8%QoQ) has improved the current ratio slightly. That said, income from Laraib and PCE + Bonus payments from the base plant continuing to drive payouts (making up Rs4.24/share of the Rs4.5/share payout declared in 1HFY15). Upcoming payments for new ventures include outlays for 660x2MW coal fired expansion and acquisition of 9.6% stake in SECMC, and a two month time period provisioned between receipt of term sheet from lenders and declaration of financial closure, analysts expect initiation of equity outflows worth Rs5.87 billion (at 49% equity stake on 80:20 leverage) from 1QFY17.