Pakistan Stock Exchange benchmark index declines almost 5%WoW

During the week ended on September 01, 2023, the benchmark index of Pakistan Stock Exchange declined by 4.95%, losing 2,358 points to close 45,313 level.

NEPRA’s announcement to increase the average national power tariff by PKR4.96/unit for FY24 was met with strong disapproval and countrywide protests.

The business communities and other political parties showed dismay as well and criticized DISCOs over the levied capacity charges on consumers. Moreover, the Finance Division allowed for a massive hike in petrol and diesel prices.

After much anticipation of upheaved inflation figures, August’s CPI was announced as 27.4%, giving a source of comfort during a crunch period.

Given elevated demand for the greenback, Pak rupee witnessed an erosion of 1.4%WoW, reaching PKR305.47 against US$ on Friday. Furthermore, towards the week’s end, the gap between the interbank and open market exchange rates remained 7.4%.

According to the IMF agreement, this gap should not be ±1.25% for 5 consecutive days. Moreover, the forex reserves held by the central bank declined by US$81 million to US$7.85 billion owing to debt repayments and July’s current account deficit can put additional strain on reserves. Cumulatively, these reasons have had a negative impact on the market.

To curb the gas sector’s revolving circular debt, Petroleum Ministry is gearing for a 60% increase in gas prices.

On the bright side, FBR has provisionally collected PKR1.21 trillion during first two months of FY24, against a target of PKR1.18 trillion, reflecting an increase of PKR24 billion.

Market participation witnessed a decline, with traded volume averaging at 187 million shares, as compared to the previous week’s average of 206 million shares.

Other major news flows during the week included: 1) Foreign investors’ buying in August reported at US$12.87 million, 2) PIA demanded PKR23 billion bailout from government, 3) CMEC announced to halt production at Thar coal mines given non-clearance of US$50 million, 4) Total tax collected from power sector including electricity bills was reported at more than PkR160bn for FY23, 5) SBP adopted certain AAOIFI’s Shariah standards, 6) Income tax department levied super tax on non-resident companies in negation of double taxation treaties, 7) DISCOs withdrew up to 41% less power from national grid in 4QFY23, and 8) slightly over 8 million mobile phones were manufactured by local plants during Jan-July 2023 period.

Textile weaving was the top performer, while close end mutual fund/ power generation & distribution/ automobile parts & accessories were amongst the worst performers. Major selling was recorded by Banks/DFI with a net sell of US$6.26 million. Insurance companies absorbed the selling with a net buy of US$7.9 million.

Top performing scrips of the week were: SCBPL, INDU, HMB, AICL, and NRL, while top laggards were: HGFA, DGKC, NML, APL, and NCL.

Going forward, market is in commensuration with outcomes of 1) upcoming Monetary Policy Committee meeting on 14th September, 2) ensuing review with IMF in October, and 3) developments encircling energy reforms.

In the event of an interest rate hike, cyclical sectors may face turbulence, although market has already adjusted for this impact.

Analysts reiterate following a cautious approach while picking stocks and continue to advocate US dollar-denominated revenue stream scrips (Technology and E&P sector) to hedge against currency risk or high dividend yielding scrips.

 

 

Pakistan Stock Exchange returning to business as usual

The week ended on August 18, 2023 witnessed investors’ sentiments swaying in either direction owing to major developments on the political front. The caretaker set up was finally announced with Anwaarul Haq Kakar taking charge as Prime Minister and announcement of portfolios of 24-member cabinet. However, general elections seem to be delayed owing to higher population numbers requiring fresh constituency delimitations.

The first gift of the interim government was hike in fuel prices, said to be in line with global oil price hikes and IMF SBA requiring fiscal discipline. Further, hikes in power tariffs added to an already high inflationary environment, coupled with high interest rates have been hurting industrial output particularly the textile sector, which has been hit with added gas curtailments.

The latest LSMI numbers stand at 114.83 for FY23, indicating a drop of 10.26%YoY. Further, PKR remained under pressure against the US$ with the biggest issue being the spread between interbank and open market rate, at PKR295.78/US$, down 2.46%WoW).

The benchmark index opened the week at 48,424 points, and closing at 48,218 points, down 205 points or 0.43%WoW.

Average daily traded volume was recorded at 175 million shares, as compared to 255 million shares a week ago, down by 31.50%WoW.

The other key news driving the market during the week included: 1) RDA inflows exceeded US$6.5 billion, with accounts crossing 600,000 in number; 2) K-Electric recovering PKR24.5 billion from consumers, through PKR1.52/unit surcharge imposed; 3) Federal Government debt spiked by 21.38%YoY to PKR60.8 trillion in the last month of last financial year; 4) Debt servicing reached PKR5.8 trillion; 5) Pakistan’s total debt, liabilities surged to PKR77 trillion at the end of last financial year; 5) Foreign exchange reserves held by the central bank were up by US$12 million to US$8 billion; 6) SNGPL based AGL and Fatima Fert (Sheikhupura plant) gas supply extended to March 2024 to address urea production shortfalls and 7)PRL dismissed news regarding inability to manage Russian crude oil processing.

Buying was witnessed in Automobile Parts & Accessories, emerging as the top performer recording gains, whilst Woolen saw major selling. Major selling was recorded by Banks/DFI with a net sell of US$3.89 million. Insurance companies absorbed most of the selling with a net buy of US$4.05 million.

Top performing scrips during the week were: SYS, PABC, THALL, JDWS, and AIRLINK, while laggards included LOTCHEM, FCEPL, CNERGY, ENGRO, and BOP.

Volume leaders were: YOUW; OGDC; DGKC; PPP; KHYT.

Analysts anticipate the market to remain on positive trajectory owing to a safe passage towards the caretaker setup. However, due to the IMF’s strict conditions with regards to fiscal discipline and a move towards the general elections, market performance may remain volatile with some cushion coming from bilateral/ multilateral inflow commitments and elevated reserves’ level compared to prior periods.

They continue to reiterate following a cautious approach to stock picking and continue to advocate dollar-denominated revenue stream scrips (Technology and E&P sector) to hedge against currency risk or high dividend yielding scrips.

Getting Federal Budget approved should be the top priority of Shehbaz Sharif

In all probability, the incumbent government, headed by Shehbaz Sharif, is scheduled to present Federal Budget 2022-23 in the lower house on June 10, 2022. There is an overwhelming perception that the economic team hasn’t been able to put its much talked about plans and finalized the nitty-gritty.

This impression is based on the fact that Pakistan and International Monetary Fund are still polls apart, mainly because the Pakistani economic team is not paying heed to the instructions of the Fund.

Over the last six weeks the Shehbaz team has not met even the first target of raising prices of petroleum products and electricity and gas tariffs. Most of the time is being wasted on maligning the previous government headed by Imran Khan, rather than taking into account the harsh domestic and international realities.

The team faces the most tedious task of projecting income and expenses targets and meeting the deficit. It is too obvious that the coalition government has fewer options available to boost income and it will not be able to follow any austerity drive because of the mindset of the ruling elite. There is a consensus that the elected representatives will not be ready to accept any substantial cut in their salaries and perks.

It is feared that the axe will fall on federal and provincial public sector development programs. The top priority areas are: 1) improving irrigation system, 2) strengthening electricity and gas transmission and distribution infrastructures. The mounting circular debt can’t be contained without containing rampant pilferages.

For boosting country’s exports, cost of doing business has to be reduced. The top two expenses to be rationalized are interest rate and energy tariffs. The GoP expects to receive US$2 billion from IMF over the next two years. Experts believe that this much amount can be raised by exporting just one item, one million tons urea. The country has the surplus capacity to produce one million ton exportable surplus urea by ensuring uninterrupted supply of natural to the fertilizer plants.

There is no denying to that fact that huge quantities of wheat, edible oil, POL products and even urea fertilizer are being smuggled to the neighboring countries. The key problems are 1) highly porous borders and 2) restriction on the export of these commodities. These problems can be overcome by plugging boarders and bringing necessary changes in the Trade Policy.

Last but the foremost, the economic team has to come out of the illusion that hike in interest rate can help in containing inflation in the country. Let this be known to all and sundry that Pakistan suffers from cost pushed inflation. The biggest loser of hike in interest rate is the GoP. Let me reiterate that GoP is the biggest borrower and with each hike in interest rate, its debt servicing ability is marred.