Pakistan market witnesses 18 percent increase in daily trading volume

At Pakistan Stock Exchange, volatility on concerns regarding domestic politics and jitters from global monetary policies failed in deterring investor, if  a few chose to take an exit others were more than willing to enter. This is evident from the fact that that the benchmark index posted a marginal decline of 1.44%WoW and the market closed the week ended on 23^rd September 2016 at 39,782, not too far from coveted 40,000 level.

Volumes remained robust with daily average for the week rising close to 728 million shares (up 18%WoW), though concentrated in sideboard scrips with leaders for the week included: WTL, PACE, BOP, DSFL and TRG. Foreign selling persisted with outflows for the week exceeding US$16 million as compared to US$4.5 million in the previous five sessions. Leaders at the bourse were: HCAR, MTL, ASTL, EPCL and FATIMA; laggards were LOTCHEM, DAWH, SNGP, AKBL and FFC.

Key news flows of the week included: 1) PIB auction yields remained largely stable with GoP raising Rs219 billion, 2) World Bank approved US$390 million loan for Tarbela fifth extension project, 3) current account deficit for 2MFY17 touched US$1.3 billion, an increase of 92%YoY, 4) news reports indicated that Shanghai Electric Power has qualified as final bidder for an estimated US$1.6 billion stake in KEL while the latter announced its intention to acquire 40.25% stake in KAPCO and 5) Ministry of Industries and Production decided to seek approval of the ECC for further reduction in urea prices in order to offload 1.5 million tons of stock. Pakistan’s central bank is scheduled to release its monetary policy statement later on Saturday; with wider expectations no change in interest rate. It is likely to remain a non‐event for the market. Political risks remain in place with PTI’s protest set for next week likely keeping investors cautious. On the global front, following no reduction in interest rate by the US Fed, the focus will now remain on oil producers’ meeting next week, which is also likely to fail in arriving at any consensus at containing output.

Rising sharply, Pakistan posted current account deficit for August'16 at US$721 million compared to US$595 million a month ago. Consequently, 2MFY17 deficit accumulated to US$1.32 billion rising 92%YoY due to 1) rising trade deficit as imports growth accelerated, 2) remittances were still 3%YoY lower in 2MFY17 despite recovery during the month under review and 3) absence of US$337 million CSF payments received in first two months of the current financial year. According to details, imports grew at 13.9%YoY on the back of higher machinery imports (up 85%YoY) while exports continued to slump (down 9.35% YoY) keeping trade deficit at US$2.67, 35.5%YoY higher. Remittance flows normalized to US$1.76 billion for the month, up 15.3%YoY/32.5%MoM. Going forward, analysts expect trade deficit weakness to persist, which accompanied by the deceleration in remittances growth is likely to keep current account deficit higher during the ongoing fiscal year, if no remedial steps are taken to boost exports and remittances.

Pakistan market closes below 40,000 despite higher turnover

The week remained a cliffhanger for markets, coming off of the high-water mark of 40,000 as result announcements were met with a passive reaction from market participants. The index closed the week at 39,465 points, down 1.2%WoW. Expansion plans in the cement sector; strong order book for new model launches accompanied by rumors or planned capacity enhancements in autos and building materials kept select scrips in the limelight.

Healthy uptick of 60.2%WoW in volumes, average daily turnover for the week rose to 371.8 million shares as compared to 232 million shares a week ago. This was a reflection of heightened activity during earnings seasons. Volumes leaders remained retail favorites in the mid and small cap categories with solid average daily turnovers from: KEL, BYCO, DCL and DSFL. Gainers at the bourse were: SHEL, HCAR, ASTL and PSMC. Conversely laggards were: PIOC, MLCF, LUCK and CHCC.

In a trigger‐less backdrop, market participants may retain a downside bias to political developments, where bearish sentiment may trigger a spell of consolidation marking this September. Event risk in the form of macro developments including oil prices (OPEC ministers meeting in September and November), USFOMC's meeting (to possibly trigger another rate hike) and the SBP's rate decision (expected by end of the month) have the potential to spill over into markets.

The MSCI hype fizzled out with the market returning 0.02%MoM in August 2016 against an average 4%+ returns in the previous two months. Unable to sustain at 40,000 level during the month, the index retraced from its all‐time high of 40,057 points, to close at 39,810 levels. Foreign participation, took a back seat with net outflow of US$20.4 million versus inflow of US$23.2 million in July 2016. While volumes for PSX‐100 constituents remained flat, increased participation in small cap stocks bolstered overall volumes by 36.5%YoY with KEL, DCL and DSFL leading the volumes chart. Result season guided market sentiments predominantly with interest coming in sectors depicting above expected earnings announcements. In terms of performance amongst the main board, Automobiles, Textiles, Oil & Gas and Commercial Banks superseded the rest while Cements and Fertilizers lagged behind. Going into September 2016, analysts believe the market will continue hovering around the current level with political risks coming to the fore. Globally, key events to track are: 1) US FOMC meeting scheduled on 20-21 September potentially impacting the dollar and consequently regional equities and 2) an informal OPEC meeting on 28th September to discuss production freeze on oil.

Recently released NFDC numbers revealing higher fertilizer offtake during July 2016, where total fertilizer sales was 1.1 million tons against 618000 tons sold in July 2015 (up 78%YoY/58%MoM), a clear reflection of the subsidy package announced in budget FY17. In tandem, urea sales have also increased significantly by 66%YoY/32%MoM to 777,900 tons during the month under review. However, on a cumulative basis, fertilizer sales remained dismal during 7MCY16, as total fertilizer and urea offtake was 3.96 million tons (down 15%YoY) and 2.60 million tons (down 22%YoY) respectively. Similarly, DAP sales also remained strong during the month under review, registering an increase to 199,000 tons, of which imported DAP offtake amounted to 131,000. EFERT and FATIMA have come out as clear winners with urea sales for both recovering significantly.

Pakistan stock market closes the week almost flat

The benchmark of Pakistan Stock Exchange PSX‐100 Index closed flat for the week ended 27^th May at 36,694. The index returns underperformed the region by 2.40% due to heavy‐weight sector banking’ disappointing run amidst unexpected 25bps cut in policy rate by the State Bank of Pakistan (SBP). This also caused average daily traded volumes to plunge by 23%WoW to 249 million shares as compared to 325 million shares exchanging hands a week ago.

Though, foreign selling continued, it stood at US$3.81 million as compared to US$6.98 million a week ago. Leaders during the outgoing week included: HASCOL, PSMC, DAWH, SNGPL and ENGRO, while laggards included: MCB, MEBL, EPCL, HBL and SSGC.

Key developments during the week included: 1) MCB said to be in preliminary non‐binding discussion with Fullerton Financial Holdings for a possible merger with NIB, 2) GoP decided to increase PSDP outlay by 11% for FY17 to Rs1.675 trillion from current year’s allocation of Rs1.514 trillion, 3) GoP likely to increase the tax on dividend income to 20% for non‐filers while 15% tax on dividend income for return filers and it may also start charging advance tax on the alternate corporate tax, 4) SBP slashed the policy interest rate by 25bps to 5.75% in view of its assessment that inflation would remain below the target set for the FY16 and 5) the current subsidy on DAP to the tune of Rs20 billion (Rs500/bag) shared on a 50‐50 basis by the federal and provincial governments is likely to continue in the next fiscal year with Ministry of Food proposing to remove the GST on DAP and other fertilizers.

Anticipations about next fiscal year’s budget, due to be presented next week, continue to build up and will keep the index range bound. Analysts expect the budget to remain neutral for most sectors, with chances for some negativity in foods and other import‐based sectors, amidst proposals for customs duty hikes. Additionally, increased spending on infrastructure, farmer subsidies (proposal to remove GIDC, continuation of DAP subsidy) and provincial schemes would keep cements, fertilizers and steel sectors in lime light. However, with Ramadan around the corner, the theme of lackluster volumes and listless trading is expected to prevail.

I posted a blog ‘too little too late’ after SBP announced 25 basis points reduction in interest rate. However, Pakistan leading brokerage house AKD Securities has a different stance. In its report it has said that contrary to market's consensus of interest rates having bottomed out, the SBP in its latest announcement cut the policy rate by 25bps to 5.75% (DR: 6.25%). The surprise move came with little justifications where the statement highlighted: 1) higher inflation projections for FY17 on expectations of global commodity price recovery and higher domestic tariff and tax incidence, 2) limited credit uptick (8.4%YoY as of Mar'16) despite prior 400bps rate cut, 3) BoP risks in the form of higher trade deficit, decelerating remittance growth and weak capital inflows ‐ all key macro trends warranting a prudent stance. With tighter fiscal targets, the 25bps reduction is unlikely to serve as a growth catalyst, where analysts view GoP to emerge as the key beneficiary with nearly Rs1.6 trillion PIB maturities due July'16. With macro risks in place, a quick reversal in the monetary policy remains a possibility, though key determining factors from here onwards are likely to SBP's target for real interest rates and PIB roll‐over.

With Budget FY17 less than two weeks away, market expectations regarding are running high. Targeting GDP growth rate of 6.2% (4.71% in FY16), news flow is shaping budget FY17 to be unpopular in nature, where additional taxes will be imposed, to boost up FBR related up revenues, are already under consideration. In this regard, super tax extension, withdrawal of remaining SROs, increase in Withholding tax on banking transactions to 0.6% for non‐filers, are some of the important ones. While continuation of Super Tax undermines profitability growth of the  bluechip companies, positives for Fertilizer is removal of GST/GIDC on urea, subsidy extension on DAP to aid offtake growth) and Autos (lowering of import duties in order to incentivize incumbents) whereas negativity could come in Foods Producers (imposition of 10% sales tax on milk). That said, market level developments (such as increased taxation on dividend income, removal of tax exemption on pension funds) are not very encouraging either. While initial market reaction could depict volatility, investors' sentiment and attention are most likely to soon turn towards the MSCI reclassification (EM status) announcement on 14th June.

Pakistan Stock Market April 2016 Review and Outlook

Pakistan Stock Exchange continued its bullish trend in April’16 and closed the month with benchmark PSX-100 Index touching 34,719 level, posting a decent gain of 5.8 percent.

Rising crude oil prices along with a strong corporate earnings season kept investors interest live in selected sectors (Cements, Autos and Electricity).

Daily trading volumes improved with average for the month rising by a whopping 61.6% to 235 million shares against last 7-month average of 154 million shares.

Despite an increase in average trading volume, foreign selling continued to be the itchy point with foreigners selling equities worth US$18.1 million during April taking CYTD net outflow to US$122 million.

Coming down to sector performances, mimicking global oil price trends the Oil & Gas sector was seen taking charge (up 12.4% MoM) in what looks like ages,  followed by Commercial Banks (up 4.3%MoM) and Automobiles (up 2.6%MoM) while Cements ( down 0.7%MoM) and Fixed Line Telecommunication (down 6.4% MoM) lagged behind. 

For May'16, analysts believe important points to be kept in mind will be: 1) MSCI EM up gradation review drawing closer, 2) upcoming budget proposals and 3) political stand-off between ruling PML-N and opposition parties over Panama investigation gaining strength, all of which can impact market performance.

Remaining dismal for most part of FY16, average volumes improved substantially by 61.6%MoM during April'16. Similarly, average traded value also increased by 34.8%MoM to US$97.6 million during the month review as compared to US$72.4 million during March'16. While local participation remained healthy with NBFCs, Banks and Mutual funds buying US$44.15 million, foreigners remained net sellers with US$18.1 million.               

The index heavyweight Oil & Gas sector turned out to be the best performer, gaining 12.4%MoM during April'16 as oil prices rallied on account of a weak dollar and eroding stockpile.

With market participants remaining hopeful for an inclusion into the MSCI EM Index, analysts expect market to continue depicting strong performance in May'16. That said, particular consideration should be given to upcoming budget proposals and the political stand-off over Panama investigation, where any adverse development can affect market's performance negatively.

Pakistan stock market plagued by declining oil price

Like other international markets, Pakistan stock market once again plunged into negative territory. During the week ended 12^th February PSX‐100 index closed at 31,464 points (down 3.12%WoW) completely eroding the gains made a week ago. Market volatility was led by anxious investors opting for profit‐taking amid continued selling by foreign investors. During the week under review foreign outflows were recorded at US$17.2 million against US$2.2 million outflows recorded a week before.

Activity at the market failed to recover, where average traded daily volumes for the week declined to 141 million from 144 million shares. Key news flows driving the market included: 1) the GoP signed a 15-year agreement to import up to 3.75 million tons/year of LNG from Qatar at a price of 13.37% of Brent, to be imported by PSO, 2) Baluchistan government announced lifting‐off the ban on new projects of oil and gas exploration across the province and started negotiations with PPL, OGDCL and some international exploration companies, 3) the GoP borrowed over Rs116 billion at the rate of 6.10% through auction for 3‐year Fixed Rental Rate GoP Ijara Sukuk and 5) GoP directed OGRA to allow recovery of proposed Rs101 billion commercial loans to be taken by gas utilities from consumers in lieu of building pipeline infrastructure.

Leaders at the bourse included POL, SNGP, AGTL, and DAWH. The laggards were OGDC, FATIMA, HCAR, BAFL and EFERT. As earnings season gaining momentum the prominent companies scheduled to announce financial results include PSO, OGDC, PPL, DGKC, LUCK, HUBC and ENGRO. Analysts expect volumes to recover in anticipation of stronger corporate profitability. Although, persistent foreign selling continues to mar the sentiments a rally in regional markets can also bring some respite to the local market.

Pakistan’s biggest integrated electric utility K-Electric (KEL) is expected to release its 1HFY16 financial results shortly. According to a forecast the company is expected to post profit after tax of Rs15.4 billion (EPS: Rs0.56/share) reflecting an increase of 17%YoY, while 2QFY16 earnings are expected at Rs8.9 billion (EPS: Rs0.32/share), 14%YoY lower than levels seen last year. Profit before tax for 1HFY16 is expected to rise to Rs14.4 billion, up 80%YoY, aided by: 1) a 1.4% reduction in T&D losses to 22.4% during the period under review, 2) decline of 40%YoY in the cost of purchased electricity (currently at Pkr5.8/KwH) and 3) a 29%YoY reduction in financial charges. Despite these improvements, analysts caution about regulatory hurdles as dampeners to long term self‐sufficiency of supply (shifting to coal) and approval of major agreements (Multi‐Year Tarriff, Power Purchase Agreement). Prominent triggers to look out for are: 1) greater than expected reduction in T&D losses from pre US$500 million T&D revamp plan, 2) continuous decline in cost of purchased units, as FO prices fall, reducing the burden of T&D losses born by the utility and 3) significant headway on 700MW coal fired power plant to be set up with China Datang Corp, the land for which has been procured.

Total auto industry sales were recorded at 21,717 units, benefiting from the 'January Effect' prevalent in the industry. Cumulative, 7MFY16 sales remained robust, at 133,437 units increasing by 57%, supported by strong growth in offtake from PSMC (83,188 units sold, growing 90%YoY) and INDU (36,448 units sold, rising 24%YoY). Segment‐wise sales growth was led by the 800 and below 1000cc variants with sales growth of 85%YoY for 7MFY16 (44,594 units sold), followed by the 1000cc segment rising 42%YoY (14,145 units sold) and the 1300cc and above segment increased by 22%YoY (49,168 units sold). These trends in segment‐wise growth have flowed into the OEM's dominating each segment. A historical trend analysis of the past 10 years showcases January a good month.