The PSX‐100
index snapped its ten‐day winning streak during middle of the week ended 11th
March 2016 and closed at 32,669 levels, up 0.70%WoW. Overall, activity at the market showed sharp recovery,
where average traded volumes for the week ascended to 175 million shares as
compared to 135 million shares a week ago.
Key news
flows guiding the market included: 1) ECC of the Cabinet approved increase in
withholding tax on banking transactions for non‐filers to 0.4% from 0.3% and deferred the approval
of Auto Policy for more consultation, 2) NTC rejected petition of PSM for imposition of antidumping duty on import of iron ore
and steel products from China, 3) National Assembly Standing Committee on National Food Security and Research
recommended 60% excise duty on the import of dry milk to promote local dairy
sector compared to the current rate of 30 percent, 4) MoF and the MoPNR gave
the go‐ahead the Ministry of National Food Security and Research to frame policy allowing urea
import by the private sector, while the NA Standing Committee on Industries and Production also directed NFML to import urea
in order to curb domestic prices, 5) ISL inaugurated its capacity expansion of over
500,000MT of which 400,000MT can be galvanized at its state‐of‐the‐art steel
complex in Karachi and 6) DPC approved around 12 applications envisaging an increase of up to
8% in the prices of the drugs concerned and deferred the issue of reduction in prices of innovator drugs.
Scrips that
led the bourse included PTC, EFOODS, FFBL, PPL and AICL, while laggards were PSMC,
HBL, UBL, APL and AKBL. Foreign participation witnessed marked improvement this week, where net foreign
inflows for the week amounted to US$4.1 million as compared to net selling of
US$1.6 million in the week before.
The market
is expected to see consolidation around current levels where volatility can emerge from uncertainty in
global oil price movements and regional flow trends. Upcoming key events
include monetary policy review later this month, where State Bank of Pakistan
is likely to maintain status quo due to expectations of higher inflation. This would bode well for banking sector
which can gain traction as a 50bps hike in rate in September ’16 is being talked
about. Data pertaining to US oil inventories and the possibility of an OPEC meeting may keep oil prices on upward
trajectory, flowing through to the domestic Oil & Gas sector. However, many analysts remain
skeptical about any consensus due to Iran’s likely agreement to freeze
production at January’16 levels.
Despite a
number of challenges faced during CY15, UBL was able to post decent earnings
growth of 11%, with profit growth being a function of strong NII growth (+23%YoY) and
capital gains utilization (+57%YoY). Going forward, analysts expect earnings growth
to slow down to 4%YoY during CY16 where: 1) upcoming PIB maturities and lower banking spreads are making
way for tighter NIMs
and 2) continued risk of
further deterioration in international book in the light of the global commodity
slump will be key factors to be kept in mind. That said, UBL's sheer strength
in terms of diversification of income streams (non‐core income makes 31% of total income),
ability to grow loan book (already mandated for infrastructure projects) and
sizable capital gains backlog are likely to provide support to earnings. UBL
remains the most attractively priced scrips within the banking sector considering its
size and superior ROE profile. Price performance however remains hinged upon
the reversal of interest rate cycle that is likely to rejuvenate interest in
the sector.
According to
the latest dispatches data, cement demand has started to pick up where dispatches
grew to record levels during February'16 as compared to a month ago. Pick up in
domestic construction activity and respite in exports slump
were the key highlights. As a result, cumulative growth rate of dispatches improved to 7.7%YoY
during 8MFY16 from 6.4%YoY growth during 7MFY16. Companies outperforming the
industry during the month included FECTC, FCCL, KOHC, PIOC, DGKC, and MLCF,
while LUCK and ACPL remained underperformers due to continued fall in exports. On cumulative basis, KOHC, PIOC and FCCL continued to outpace the industry while
LUCK and ACPL continued to face problems on account of failure to divert lost
exports (South Africa/Iraq) to other markets. Domestic demand is expected to continue to grow at a fast pace at least
during the remainder of current fiscal year on account of record level growth in
PDSP spending and construction related private sector credit. Expected normalization of exports from FY17 and initiation of construction work on CPEC projects may further
surprise with double digit growth rate in the medium term. Due to strong fundamentals,
analysts continue to
maintain an Overweight stance on the sector where their top picks include LUCK
and DGKC on account of expansion to catch up with anticipated rising domestic demand.
Automotive sales during February ’16 declined
to 15,873 units, whereas production figures mimicked this trend. Cumulative 8MFY16 sales/offtake moved by 121,934/121,735units,
while 2MCY16 figures showed signs of exhaustion when compared to last year's exorbitant rise in
sales/production for 2MCY15
as compared to 2MCY14). All OEMs witnessed monthly sales growth stalling, which
may be due to the fading out of 'new registration' effect, while only INDU showcased
growth. The 1000cc segment fared better than others in declining offtake, while all other segments posted
declines, following the phasing out of the Punjab Rozgar Scheme (news reports
indicate final deliveries were due in February’16). At current levels analysts
express preference for INDU, citing resilience of Corolla sales (now in its 18th production month) and ability to pass on
costs.
