The benchmark index of Pakistan Stock Exchange continued to experience volatility
during the week on account of reported action by SECP against in‐house
financing and uncertainty with regards to Panama‐gate
case. Though market fell initially to one‐month low on first
day of the week, it recovered thereafter closing at 49,624 points (+1.26%WoW)
on rumors of a new leveraged product and SECP clarification on
measures/regulatory oversight over brokerage firms. Average daily traded
volumes fell by 6%WoW to 322 million shares where volume rankings were occupied
by: LOTCHEM, ASL, KEL, ANL and TRG. Leaders during the outgoing week included:
LOTCHEM, EPCL, AGTL, SNGP and ICI while laggards included: NCL, HMB, PIOC, DAWH
and PPL. Key developments during the week included: 1) Pak Suzuki Motor Company
(PSMC) sent an investment plan of US$660 million to the government, requesting
same benefits/incentives for 2 years from the start of mass production of new
models instead of 5 years granted to new entrants in the Auto Policy 2016‐21,
2) MUGHAL announced to set up 6 additional lines of 3.1MW gas CPP taking total
CPP capacity to 27.9MW and spend Rs1.00 billion on these lines and BMR of
existing re‐rolling
mill, 3) SBP issued Rs387.4 billion worth of T‐Bills
against the participation of Rs473 billion, 4) SNGP’s BoD approved a capital
intensive project for development of 1,200mmcfd LNG pipeline from Karachi to
Lahore at an estimated cost of Rs111 billion with expected COD of October 2018,
and 5) CPI inflation hit a 3‐month high of 4.2%YoY in February 2017. The market is likely to remain volatile
in the upcoming week due to lingering regulatory and political risks. Inflationary
pressures on account of rising food and fuel prices are expected to strengthen
hawkish monetary policy stance. In this backdrop, banks are expected to perform
well.
Continuing to climb albeit at a slower pace than the tail
end of CY16 bullish sentiment prevailed in global commodities market during February
2017. This sentiments were driven by hike in prices of commodities actively
traded that included oil, Cotton, Steel and food commodity prices. Whereas,
commodities witnessing decline in prices were Coal and Urea on the back of
policies and capacities raising global production. Going forward factors driving
commodity prices are: 1) divergence in global monetary policy, where any tightening
in US rates could strengthen the greenback, softening commodity prices, 2) global
economic activity picking up pace as global manufacturing PMI remain expansionary
and 3) continued tightening of supply dynamics for energy prices expected to
keep supply constrained. Lastly, political factors including expansionary
fiscal policies by the US government and China's meeting of the Politburo
Standing Committee are expected to renew commitments to infrastructure
development, providing support to metals, energy and hard commodity prices.
After a fitting end to CY16 (promising rabi season), CY17
got off to a sluggish start with not only urea but cumulative fertilizer sales
remaining depressed during January 2017 primarily in response to low crop
prices (depressed agricultural commodity cycle) and crop shortfalls lowering
farmer's income. According to latest figures released by NFDC, cumulative fertilizer
offtake during the aforementioned month was recorded at 595,000 tons as compared
to 1,278,000 tons in December 2016, declining significantly by 53%MoM, while it
rose 21% on yearly basis. Specifically, urea sales during January 2017 were
recorded at 406,000 tons as compared to 898,000 tons in December 2016, lower by
55% MoM, while it grew 19%YoY. On the contrary, imported urea sales went up to
15,000 tons in January 2017 on account of the discount offering with imported
urea prices at 10% discount to its local counterpart. Following the trend, DAP
sales also remained depressed, declining to 61,000 tons in January 2017. Post
Rabi season, near‐term expectations are: 1) export of
excess urea inventory and 2) change in international pricing dynamics.
CPI based inflation for February 2017 is projected at
4.1%YoY, considerably higher than 3.66%YoY registered in January 2017. While
food prices are likely to see a dip on seasonal trend, this should be countered
by the recent hike in petroleum prices. Consequently, 8MFY17 CPI average is
expected to rise stand to 3.9%YoY compared to 2.5%YoY in the corresponding
period. Going forward, analysts expect inflation levels to post a steady
increase buoyed by higher price levels for food items and rising global oil
prices.
