Trading at Pakistan Stock Exchange (PSX) remained
lackluster for the large part of the week. During the week ended 7th
Aptil’17, the benchmark index closed at 48,156 points with average daily
turnover during the week falling 37.36% WoW to 155.75 million shares. Volume
leaders during the week were: ASL ANL,
BOP, BYCO and TRG. Key news flows during the week were: 1) headline inflation
for March’17 rising to 4.94%YoY, 2) GoP raising petroleum prices, 3) INDU
unveiled investment plan of Rs3 billion for debottlenecking of its paint shop,
4) IMF concluded its consultation with GoP, opining cautious stance on fiscal
and external account while maintaining 5% GDP growth target, 5) Commerce
Minister hinting disbursal of the first installment under the Rs180 billion
textile package shortly and 6) SSGC approved Rs64.9 billion additional
gas pipeline development project to transfer 1.2bcfd RLNG from Bin Qasim to
Sawan with expected COD October’18. Stocks leading the bourse were:
SSGC, INDU, MEBL, LUCK, and HCAR, while laggards were: NBP, NCL, AICL, ENGRO
and SNGP. Foreign interest was positive during the week with net inflow of
US$9.25 million compared to US$19.04 million net outflow a week ago. With high
political uncertainty and delayed in implementation of in‐house
financing product, market is expected to remain under pressure. However, commencement
of results season may lend some support to the market. On the global front,
recent U.S missile attack at Syria escalated tensions in the Middle East can that
is likely to push crude oil prices higher, which can lend support to market.
The IMF recently concluded its Article IV staff‐level
discussions with Pakistan, adopting a cautious tone on the country's ability to
sustain recent macroeconomic gains. While similar to earlier reviews lagging
fiscal and reform implementation efforts were counted as potential disruptive
factors, looming external account threats also became a highlight. In this
regard, the Fund has sharply increased its FY17 current account deficit projection
to 2.9% of GDP (1.2% of GDP in FY16) on weak trade dynamics. On the fiscal
front, GoP is expected to miss its deficit target of 3.8% of GDP with IMF
forecasting the same at 4.1% owing to slow revenue collection (Rs2.2 trillion
in 9MFY17 against Rs3.6 trillion target for FY17). Urging fiscal consolidation
and greater tax collection, the Fund has also highlighted lack of progress on
structural reforms in the energy sector. On a positive side, GDP growth for
FY17 is expected to rise to 5.0% as compared to 4.7% for FY16 on CPEC led
investment. IMF has appreciated controlled inflation levels, though advising a
prudent monetary stance keeping in view fiscal and external risks.
Due to high political uncertainty, Pakistan market witnessed
0.8% MoM erosion during March'17, trimming down its CYTD return to a mere 0.7%.
While foreign selling continued unabated during the month (FIPI outflow of
US$22.8 million in March'17), participation of local players also remained lean,
with volumes coming down by 31%MoM. Buying activity of Mutual Funds came down
to around US$19.1 million as compared to US$47.9 million and US$44.1 million in
February'17 and January'17). Banks and Individuals sold US$16.1 million and
US$35.1 million worth of equities respectively. Barring Textiles, all main-board
sectors posted negative returns with the highest decline seen in Cements and
the index heavyweights Oil and Gas and Commercial Banks. Going into April'17 is
likely to hold key importance in determining the market's direction. In addition,
other points of significance include: 1) foreign flow trend a month prior to
inclusion in MSCI EM index next month, 2) commencement of results season, 3)
preliminary budgetary news flow and 4) inflation number this month to set the
tone for interest rate hike during the year.
Upsides in HASCOL are due to superior volumetric growth
(CY17‐21
CAGR of 9.7%) outpacing the industry, with requisite CAPEX
dovetailing an aggressive retail push (adding 16 pumps per quarter for CY16)
and storage infrastructure (planned addition of 350,000MT operational by
1QCY18). In this backdrop, AKD Securities has raise its CY17‐19
earnings by 11%, on the back of revised volumetric growth and increasing long
term CPI assumption to 4%. However, with ambitious growth targets, the risks
from a volatile oil price environment and associated inventory losses are hard
to rule out. Ramping up of supply is also expected to strain liquidity while a
commensurate increase in below the line expenses may drag profitability.
Compared to listed peers, HASCOL’s books have better liquidity with room
available to handle planned CAPEX. At current levels, the market seems to be under
pricing growth.
