Ignoring recent political flare up the benchmark of Pakistan Stock exchange, PSX-100 index resumed bullish momentum during the week ended 26th August. After some recent profit-taking, the benchmark Index closed the week at 39,927 points. Average daily volumes for the week remained almost flat a little above 232 million shares with KEL, TRG, DFML, SNGP and AMTEX leading the board.
Key news flows during the week included: 1) GoP announced that claims for tax refunds for which payment orders were issued till 30th April would be settled by 23rd August this year, 2) SSGC in its plan submitted to the OGDC indicated spending Rs118.5 billion on its ongoing and new projects for improving and upgrading its transmission and distribution network, including RLNG transmission projects over the next 5 years, 3) meeting of the Drug Pricing Committee (DPC) summoned on 30th of this month, where pharmaceutical companies have appealed to the government to increase the prices of various medicines, 4) ADB approved US$810 million in multi-tranche loans for Pakistan's transmission system, funding rehabilitation of NTDC's grid, 5) service deficit rose to US$290 billion, as against a surplus of US$51 million last year and 6) due diligence for MCB acquisition of NIB nearing completion.
Performance leaders during the week were: SNGP, ASTL, ICI and PSMC; while laggards included: HMB, SHEL, FATIMA and PPL. Foreign participation also eased out where net inflows during the week amounted to US$1.9 million as against considerably high net outflows of US$18.4 million a week ago.
Interest in the coming week is likely to be centered around the remainder of the corporate result for the season especially cement sector. Major companies scheduled to announce results include LUCK, DGKC, KOHC, KAPCO, GHNL, KML, ICI, AGIL and SMBL. At the tail‐end of earnings season, analysts expect the index to remain range-bound, in the absence of major triggers. Global developments surrounding oil prices and speculations over an output freeze by major oil producers may spur the index heavy Oil & Gas sector.
Reflecting lower remittances and delay in CSF installments, current account deficit for July 2016 widened to US$591 million. Remittances received during the month declined 20% YoY/36%MoM on account of 1) worsening labor dynamics in GCC region, 2) greater regulatory monitoring in US, and 3) seasonal impact from Ramadan. Trade deficit also continued to worsen; where monthly deficit widened 18%YoY with exports declining 6.6%YoY and imports rising 6.2%YoY in July 2016. Foreign investment flows remained a mixed bag; with portfolio investments staying in the positive zone (US$49.5 million inflows as compared to US$24.7 million outflows), FDI registered a decline of 14.6%YoY on reduced investments from China (decline of 75.8%YoY). Going forward, analysts expect current account to post a deficit of 1.7% of GDP during FY17 underpinned by weak trade outlook amid stagnant remittance inflows.
National Bank of Pakistan (NBP) has posted consolidated profit after tax of above Rs10 billion (EPS: Rs4.74) for 1HCY16 as compared to net profit of Rs7.8 billion (EPS: Rs3.70) for 1HCY15, up by hefty 28%YoY. This above expectations performance can be attributed to higher net interest income (NII) along with lower than expected provisioning expense. Sequentially, there was a substantial 51%QoQ uptick in earnings on the back of 31%QoQ higher NII and capital gains, despite higher tax incidence (tax rate of 45% in 2QCY16 as compared to 35.0% in 1QCY16). Key 1HCY16 result highlights included: 1) a 9%YoY/31%QoQ increase in NII, 2) provisions down 78% YoY/48%QoQ to Rs1.3 billion during the period under review, 3) non-interest income came down by 20%YoY due to 54%YoY lower capital gains. However, fee income posted a considerable rise of 20%YoY during 1HCY16 and 4) a 8%YoY increase in total expenses. Sequential uptick can be attributed to growth in NII that was up by a commendable 31%YoY. NBP’s 1HCY16 earnings performance is encouraging due to growth in NII along with improvement in asset quality.
Continuing with its disappointing trend, detailed data for external trade reflects a marked decline during July 2016, where exports were registered at US$1.48 billion, down 7.4%YoY/10.4%MoM. Exports registered a decline across all segments, with highest impact coming from the heavyweight Food and Textile sectors at US$185.5 million and US$982.6 million, posting decline of 15.4%YoY and 4.2% YoY respectively. Going forward, despite a buildup in pressures due to weakness in PkR/US$ parity. Analysts expect textile exports to remain under pressure on the basis of: 1) lower Chinese demand due to slow economic growth, 2) lack of currency competitiveness (as opposed to regional competitors) limiting GSP+ benefits, 3) concerns of an economic slowdown in the EU following Brexit and 4) shortage of cotton supply after tapering cotton production last year with arrivals down by 34%YoY.
