Delivering persistent returns despite the recent spate of
foreign selling (outflow of US$125.7 million since November'16), the benchmark Index
of Pakistan Stock Exchange grew 0.63%WoW, gaining 271pts closing at 43,271
points. Supported by OPEC's decision to restrict crude output and resulting movement
in global benchmarks (Brent/WTI gained 11.8/8.4%WoW), upstream Oil & Gas
climbed higher.
Key news flows during the week were: 1) CPI for November’16
was reported at 3.81%YoY compared to 4.21%YoY in October'16, implying sequential
increase of 0.21%MoM, 2) deregulation of 95 and 97RON MOGAS affirmed by Minister
stating that 92RON would replace the 87RON previously being supplied, 3)
Finance Minister announcing increase in price of petrol and diesel, 4) GoP
releasing Rs248.1 billion for various development projects under public sector
development program (PSDP) under the current financial year as against a total
allocation of Rs800 billion during the previous year and 5) Pakistan Stock
Exchange (PSX) scheduled to open bids on Monday, December 5, 2016 submitted by
foreign strategic investors and local institutions to for acquiring 40 percent
stake of the bourse. Key gainers at the bourse during the week were: EPCL, MTL,
ICI and ENGRO, whereas laggards were: NCL, NML and HCAR. Average traded volumes
were highest for: BOP, PACE, ASL and WTL. Approaching end of the year holiday
season, foreign participation is expected to take a back seat as local funds
and institutional investors, favoring blue‐chip plays offering
value. Rise in local oil prices have further fueled expectations of a bottoming
out of the monetary atmosphere keeping commercial banks in the spotlight.
Gaining 6.9%MoM in November'16, PSX‐100
index stood its ground in what was an eventful month for the world; while
global equity markets struggled (MSCI EM/FM down 5%/2%MoM) on policy
uncertainties post Donald Trump's election as US President. This was despite
persistent foreign selling where outflow for the month rose to US$117.05 million
‐
the highest in CY16. While the entire main-board posted positive returns,
Cements led the board returning 15.9%MoM (on anticipated strong growth in
dispatches and reversal in coal prices after a short lived rally) followed by
Textiles (+9.7%MoM due to anticipated pressure on local currency amid strengthening
US$) and Chemicals (+8.0%MoM on reduction in gas prices for industries). Going
into December'16, the market is likely to look towards the following, taking
direction accordingly: 1) oil price trend in the light of OPEC's production cut
agreement and the stance adopted by non‐OPEC producers
following the decision, 2) FOMC meeting on December 13‐14
where any potential rate hike can continue prompting outflows and 3) on‐going
Panama papers related hearing keeping political pressure intact.
To stimulate growth, news flows have disclosed that the
ECC has approved a 33% reduction in gas prices exclusively for industries,
bringing down prices to Rs400/mmbtu. As an official notification by OGRA is still
pending, lack of clarity remains on the inclusion of certain heads in the concession
to be availed. It is general understanding that the gas price reduction extends
to general industries that utilize gas as a fuel source including Steel, Glass,
Fertilizers (concession available on fuel stock only) and Textiles. While
benefiting industries by and large, Fertilizers, the largest industrial
consumer of gas, stand to benefit the most followed by Steels and Textiles.
Cements, on the other hand, are likely to remain unaffected unless the concession
is also extended to captive power generation‐ gas tariff for which
is determined under a separate head. In this backdrop, while the Fertilizer
sector might enjoy a short‐term rally, a weak demand
outlook and depressed international pricing dynamics can continue restricting
price performance.
