Pakistan Stock Exchange benchmark index touches new highs

Market's bullish momentum continued during the week ended on April 05, 2024, with the benchmark index challenging previous highs and achieving the highest-ever closing at 68,417 points on Thursday, with a gain of 1,412 points or 2.1%WoW.

The momentum was supported by easing inflation, turning real interest rates positive for the first time in 38 months.

Foreign investors and institutions injected additional liquidity through buying, supporting the market's momentum.

Despite a 9.2%MoM growth in exports, trade deficit widened to US$2.2 billion, up 25%MoM.

With Eid approaching, remittances are expected to increase, helping to control the current account balance.

FBR missed its monthly tax collection target for the third consecutive month, although the 9MFY24 numbers were still within target.

World Bank estimated the country's GDP growth target at 1.8% for the current year, below 3% for the following two years, resulting in an overall combined GDP growth for three years that remains lower than the population growth rate.

With a stable exchange rate and high yields, hot money has begun to return, with net inflows into T-bills from January to March 22, 2024, reaching US$126 million.

Reportedly Saudi Arabia has expressed interest in purchasing shares of two E&P giants ‑ OGDC and PPL, in addition to an expected investment of US$1.0 billion in the Reko Diq project.

According to the reports, Lahore High Court dismissed the application against the deregulation of non-essential medicines, which boosted positivity in the sector on the last trading day of the week.

Lastly, increasing tensions in the Middle East have led to international oil prices reaching their highest levels in six months, posing risks to Pakistan’s import bill as well as the inflation outlook if not eased promptly.

Despite bullish sentiments, market participation declined with daily traded volume averaging at 307 million shares as compared to 331 million shares a week ago, down 7.1%WoW.

Other major news flows during the week included: 1) experts estimated Pakistan needs US$120 billion needs in external financing over five years, 2) Petrol price increased by PKR9.66 per litre, and 3) Cement dispatches were up 3.85%MoM in March.

Pharmaceuticals and Refineries were amongst the top performers, while Transport, Tobacco, and Synthetic & Rayon were amongst the worst performers.

Major net selling was recorded by Insurance cos. with a net sell of US$5.6 million. Foreigners absorbed most of the selling with a net buy of US$3.9 million.

Top performing scrips of the week were: DAWH, SCBPL, MUREB, BIPL and SEARL, while top laggards included: PTC, KTML, PAKT, IBFL and PKGS.

Going forward, market is expected to return its focus to negotiations with the IMF regarding the EFF program, upcoming monetary policy committee meeting, and the corporate results season following the Eid holidays.

Despite the market reaching its highest levels, the forward P/E remains below 4.0x, which instills positivity regarding the market's fundamentals. Analysts continue to advise investors to consider fundamentally strong stocks.

 

 

 

 

State Bank of Pakistan raises policy rate to 15%

State Bank of Pakistan (SBP) in its Monetary Policy Statement (MPS) has increased policy rate by 125bps to 13-year high of 15%.

As per SBP, inflation expectations have risen significantly due to local and international challenges. Inflation in June 2022 rose to a 14-year high of 21.3% as government removed energy subsidies.

Furthermore, external account concerns also increased as current account deficit was reported at US$1.4 billion in May 2022 which was higher than expected. As a result, foreign exchange reserves and rupee has remained under pressure further increasing inflation expectation.

SBP stressed the importance of monetary tightening and its impact on containing aggregate demand. Had the monetary tightening measures not been taken by the central bank, inflationary pressures and external account issues could have further worsened.

SBP also stressed the need to provide targeted subsidies where inflationary pressures and impact of higher utility prices must be absorbed by well-off segment of the society.  

The interest rates on LTFF and EFF loans are now being linked to the policy rate to strengthen monetary policy transmission, while continuing to incentivize exports by presently offering a discount of 500bps relative to the policy rate as per SBP. It is believe that the hike was in line with IMF’s key demand to reduce concessions given to industry and improve monetary policy transmission.    

SBP expects inflation to remain in the range of 18-20% in FY23. It is anticipated to fall in the range of the 5-7% target range by the end of FY24, driven by tight policies, normalization of global commodity prices, and beneficial base effects. GDP growth rate is likely to remain in range of 3-4% in FY23. SBP anticipates Current Account Deficit at 3% of GDP in FY23. 

Despite the impact of tight fiscal and monetary policy on demand-pull inflation, inflation is likely to remain elevated around current levels for much of FY23 due to the large supply shock associated with the reversal of fuel and electricity subsidies.

SBP is likely to continue to monitor developments and factors affecting medium term prospects for inflation, fiscal stability and growth. SBP is anticipated to take appropriate action to safeguard them.

SBP expects Pakistan to reach Staff Level agreement with IMF very soon as government has already taken the difficult decisions like reversal of petroleum subsidies and passage of budget in line with key objectives agreed with IMF.

Completion of the on-going IMF review will also catalyze additional funding which should help Pakistan meeting its external financing requirements. 

Both monetary and fiscal policies are now moving in same direction which should help address inflationary pressures going forward.

SBP has refrained from giving forward guidance recently due to a lot of uncertainty as SBP’s policy decisions will remain data driven.

Though, inflationary pressures are cost push in nature but monetary tightening helps contain core inflation which is also rising and needs to be contained as per SBP.

Pakistan Stock Market Witnesses Return of Foreign Investors

The benchmark index of Pakistan Stock Exchange closed the week ended 24^th March 2017 at 48,971, up paltry 1.16%WoW. Investors remained cautious and activity remained lackluster with average daily traded volume at 257.8 million shares. KEL led volume charts with 140.9 million shares) as NEPRA determined the company’s multi‐year tariff  (MYT) reducing its base tariff from PkR15.57/kWh to PkR12.07/kWh which was followed by news reports of PM Sharif forming a committee to review the tariff after a meeting with Chairman of SPIC (Shanghai Electric’s parent company). Other key developments for the week included: 1) current account deficit for February 2017 was reported at US$744 million, taking cumulative 8MFY17 deficit to US$5.47 billion, up 120%YoY, 2) PIB yields remained flat at the latest auction with GoP raising PkR28.5 billion, 3) February 2017 fertilizer off‐take declined by 19%MoM/2%YoY to 491,000 tons, 4) HBL announced plan to sell its Kenyan branches in exchange for 4.18% holding (13.28 million shares) in Diamond Trust Bank Kenya and 5) PSMC considering shelving its planned US$450 million investment in spare parts plant and capacity expansion. Stocks leading the bourse were: SNGP, AGTL, MEBL and EFERT and laggards were: KEL, ICI, UBL and APL. Foreign interest was positive during the week with inflows of US$3.47 million compared to US$11.07 million net outflow a week earlier. Little surprise is expected at the Monetary Policy announcement scheduled on 25^th March as marker expects rates to remain unchanged. On the global front, representatives of the five monitoring OPEC/Non‐OPEC countries will meet to review compliance with the members’ deal to curb supply by 1.8 million bpd. Market is likely to remain volatile till clarity about the upcoming FY18 federal budget.

Current account continues to steadily deteriorate with 8MFY17 cumulative deficit to 1.7% of GDP or US$5.47 billion. This reflects rising imports (+11.2%YoY) this fiscal year on the back of higher oil prices (8MFY17 oil imports up 15.4%YoY) along with greater machinery (12%YoY) and auto (36%YoY) imports. This has been exacerbated with weak exports (down 2%YoY in 8MFY17) and tepid remittance flows (down 2.5%YoY). In February 2017 deficit was registered at US$744 million, lower than US$1.2 billion recorded in January 2017 helped by lower imports for the month ( down 6.2%MoM) and US$350 million CSF inflows under service exports received earlier. Going forward, unfavorable trade dynamics will prompt further weakness in the deficit, with additional CSF inflows of US$200 million received in March 2017 and expected recovery on the remittance in 4QFY17 based on seasonal trends.

NEPRA has released KEL's MYT for the years FY17‐23 with numerous details still to be sorted. Salient features of the tariff include: 1) seven year period covered under the determination as opposed to the request for ten years, 2) raising of T&D benchmark, 3) allowance for passing through of increased O&M expense with inclusion for WPPF and WWF, 4) allowance of write-offs up to 1.78% of Electricity sales revenue in any given year, and 5) planned CAPEX of PKR237.6 billion allowed for in the tariff and adjusted in the base tariff. Contrary to increased allowances and benchmarks, the base tariff for the utility has been decreased to PkR12.00/ KwH (after adjusting for T&D and fuel), a reduction of PkR0.94/KwH over FY16's tariff, raising concerns of a tapered bottom‐line. Analyst from ADK Securities believes that  KEL may approach NEPRA for a Review, with specific aspects being highlighted.

Pakistan stock market witnesses decline in volume traded

In a long due correction, Pakistan Stock Exchange (PSX) took a breather during the week ended 23^rd December 2016. The benchmark index closed flat at 46,634 levels. Key event for the week was completion of bidding process for the sale of 40% shares of PSX, where Chinese‐led consortium emerged as the highest bidder with Rs28/share. Volumes dipped during the week with average daily turnover at 336.6 million shares, down by 5.8%WoW.

Major news flows during the week were: 1) Prime Minister Nawaz Sharif brought five key regulatory bodies including OGRA and NEPRA under the administrative control of relevant divisions/ministries, 2) Current Account Deficit for November’16 rising to a hefty US$839 million as compared to US$381 million in October’16, taking 5MFY17 deficit to US$2.6 billion, up 91%YoY, 3) GoP raised Rs149.9 billion in MTB auction where cut off yields for 3 and 6 month moved up, 4) PSMC confirmed plans to launch the standard model of Suzuki Celerio in March’17 that will replace it Cultus model, 5) Competition Appellate Tribunal has dismissed an appeal filed by HASCOL to prevent PSO from acquiring SHEL’s shares in Pakistan Refinery and 6) NEPRA granted power generation license to Maple Leaf Power Limited, clearing the way for setting up an imported coal‐fired plant of 40MW at an estimated cost of Rs5.5 billion. Market leaders for the week were: HMB, EPCL, AICL, PSMC and ABL. Laggards during the week were: MEBL, LOTCHEM, SSGC, HASCOL and ASTL. Foreign participation continued its negative trend with US$45.5 million outflows compared to US$46.7 million in the last week.

The market is likely to largely continue its positive trend over the near term, however room for volatility in the next week remains where risks could emerge in the form of: 1) any swing international oil price on potential concerns on rising US inventories and 2) and political developments gaining prominence. Possible announcement of anticipated exports incentive policy in the near term remains a key trigger for price performance in the textile sector.

Shifting of policy stances (gas price curtailment, privatizations), incidence of higher taxation (super tax continuation, real‐estate) and sector specific packages (auto policy, incentives for textile exports) add up to a 'hit‐or‐miss' policy environment for domestic industry. Sectors bearing the brunt of policy actions include: 1) Textiles through zero‐status scheme granted to all export‐oriented sectors and accompanying DLTL and ERF incentives, 2) Autos from the introduction of AIDP‐II and accompanying incentives shifting long term competitive dynamics in the sector, 3) Fertilizer on support from GST reduction, cash subsidies and reduced feedstock prices in April’16, and 4) Cements, as they faced higher FED, difficulty in approval for coal expansions and blowback from real estate taxes. For CY17, analysts expect regulation pertaining to export competitiveness to continue, while expansion projects with FDI elements (foreign ownership) to continue remaining in favor. Moreover, as election year approaches, targeted subsidies for agri‐linked sectors, consumer cyclical (Autos, Consumer Goods) from widely accepted populist policies, are expected to gain steam.

Balance of payment metrics in November'16 has remained unimpressive. While exports for the month marked slight recovery with 6.2% sequential rise, they remain flat on YoY basis which coupled with 6.0%MoM/10.8%YoY rise in imports has pushed the trade deficit 10.5% MoM/14.3%YoY higher. While remittances improved 3.3%YoY for the month to US$1.61 billion, dip in flows from GCC region at 0.8%YoY still remains a concern. Foreign investment inflows netted at US$87.2 million in November'16, down 41%YoY, where FDI stood at US$143.7 million (down 37% YoY) as inflows from China have been slow this fiscal year (China's share in 5MFY17 down to 34% from 45% as compared during the same period last year). Going forward, Balance of Payment trends are expected to worsen; with little room for fast paced recovery in exports. Analysts see FY17 trade deficit expanding by 14%YoY which coupled with flattish remittance flows should keep the deficit high.