Pakistan stock market closes flat

With bouts of profit‐taking dampening an otherwise strong rally, the benchmark index of Pakistan Stock Exchange (PSX) closed almost flat at 49,211 for the week ended 13^th January 2017. Price increases from steel manufacturers, rally in dividend paying stocks before results season, announcement of an export promotion textile package and reversal in fertilizer subsidies revived investor participation, raising average daily turnover for the week by 19.7%WoW. Key news flows included: 1) ECC approving the summary regarding the Prime Minister's Package of Incentives for Exporters with an estimated outlay of Rs180 billion, 2) data showing that during November’16 large scale manufacturing sector grew 8 percent, 3) car sales during December’16 declining to 16,042/14,024 units, lower by 10.2%YoY/12.4%MoM, 4) GoP withdrew the cash subsidy on fertilizers, which was offered to the industry in the budget for FY17, and 5) HUBC has increased stake to 47.5% from 26% in the joint venture of setting up a 1,320MW power project on imported coal at an estimated cost of over US$2 billion . Leaders at the bourse were: ASTL, EPCL, SNGP, and KAPCO, whereas laggards were: PPL, EFERT, NML, and AICL. Volume leaders for the week were KEL, TRG, EFERT and ANL. As results season approach, stocks undergoing price performance stand to lose if earnings growth fails to match investor expectations. Additionally, any reversal in the GoP's annulment of the fertilizer subsidy may allow for pairing back losses.

During December’16 total industry/car sales were recorded at 16,042/14,024 units, lower by 10.2%/12.4%MoM, while the high base from the Rozgar scheme kept industry sales lower by 11.6%YoY. The full year (CY16) industry/car sales at 203,633/177,363 units tapered 9.2%/2.7%YoY, whereas ex‐Rozgar, car sales jumped 26%YoY.  Impressive offtake of Civic drove HCAR sales higher by 24.1%YoY, while PSMC sales ex‐Rozgar tracked up 19% YoY, whereas INDU marked a fall of 3.9%YoY.  Segment‐wise, growth was seen continuing in 1000CC segment up 26%YoY, 1300CC and above increasing by 4%YoY), while the Rozgar‐led high of (68%YoY growth in CY15) cooled in the 1000CC and below segment.  

The CY16 turned out to be an eventful year for commodities. All the major commodities including Oil (up 77%YoY on production cut agreement), Steel (up 85%YoY on increased protectionism and demand stabilization), Coal (up 73%YoY on supply tightening from China), Sugar (up 44%YoY on sustained import demand), Dairy (up 28% YoY on EU intervention price) and Cotton (up 13%YoY on weather related crop shortfall). The exception in this regard was Urea with prices for the commodity down 1.5%YoY however recovering well to US$232/ton currently. Going forward, prices for most commodities, including Oil, are expected to rise, carrying on the momentum from CY16 as markets re-balance. That said, high global stock levels particularly with China and currency uncertainty following Trump's presidency can throw a spanner in the works.   

Chinese have submitted the highest bid for buying controlling stake in Pakistan’s largest integrated utility, K-Electric. Developments surrounding the sponsor hand-off at the utility continue to drive sentiment, while minor price slippages signal growing impatience. Concrete developments include: 1) passing of resolution by shareholders of Shanghai Electric Power Co. Ltd (SEP) approving acquisition of 66.2% shares in the Company, 2) submission of documents and supporting financial reports of SEP to NEPRA for approval, and 3) news reports regarding the approval process for sale, ongoing negotiations, sum up the long and arduous process for change in sponsors. Highlighting the operational credentials of SEP, analysts reiterate the benefits from this planned change in ownership, using past actions by the entity as a blueprint for possible actions by SEP post acquisition in the Company.