Pakistan Stock Exchange benchmark index declines almost 5%WoW

During the week ended on September 01, 2023, the benchmark index of Pakistan Stock Exchange declined by 4.95%, losing 2,358 points to close 45,313 level.

NEPRA’s announcement to increase the average national power tariff by PKR4.96/unit for FY24 was met with strong disapproval and countrywide protests.

The business communities and other political parties showed dismay as well and criticized DISCOs over the levied capacity charges on consumers. Moreover, the Finance Division allowed for a massive hike in petrol and diesel prices.

After much anticipation of upheaved inflation figures, August’s CPI was announced as 27.4%, giving a source of comfort during a crunch period.

Given elevated demand for the greenback, Pak rupee witnessed an erosion of 1.4%WoW, reaching PKR305.47 against US$ on Friday. Furthermore, towards the week’s end, the gap between the interbank and open market exchange rates remained 7.4%.

According to the IMF agreement, this gap should not be ±1.25% for 5 consecutive days. Moreover, the forex reserves held by the central bank declined by US$81 million to US$7.85 billion owing to debt repayments and July’s current account deficit can put additional strain on reserves. Cumulatively, these reasons have had a negative impact on the market.

To curb the gas sector’s revolving circular debt, Petroleum Ministry is gearing for a 60% increase in gas prices.

On the bright side, FBR has provisionally collected PKR1.21 trillion during first two months of FY24, against a target of PKR1.18 trillion, reflecting an increase of PKR24 billion.

Market participation witnessed a decline, with traded volume averaging at 187 million shares, as compared to the previous week’s average of 206 million shares.

Other major news flows during the week included: 1) Foreign investors’ buying in August reported at US$12.87 million, 2) PIA demanded PKR23 billion bailout from government, 3) CMEC announced to halt production at Thar coal mines given non-clearance of US$50 million, 4) Total tax collected from power sector including electricity bills was reported at more than PkR160bn for FY23, 5) SBP adopted certain AAOIFI’s Shariah standards, 6) Income tax department levied super tax on non-resident companies in negation of double taxation treaties, 7) DISCOs withdrew up to 41% less power from national grid in 4QFY23, and 8) slightly over 8 million mobile phones were manufactured by local plants during Jan-July 2023 period.

Textile weaving was the top performer, while close end mutual fund/ power generation & distribution/ automobile parts & accessories were amongst the worst performers. Major selling was recorded by Banks/DFI with a net sell of US$6.26 million. Insurance companies absorbed the selling with a net buy of US$7.9 million.

Top performing scrips of the week were: SCBPL, INDU, HMB, AICL, and NRL, while top laggards were: HGFA, DGKC, NML, APL, and NCL.

Going forward, market is in commensuration with outcomes of 1) upcoming Monetary Policy Committee meeting on 14th September, 2) ensuing review with IMF in October, and 3) developments encircling energy reforms.

In the event of an interest rate hike, cyclical sectors may face turbulence, although market has already adjusted for this impact.

Analysts reiterate following a cautious approach while picking stocks and continue to advocate US dollar-denominated revenue stream scrips (Technology and E&P sector) to hedge against currency risk or high dividend yielding scrips.

 

 

Pakistan Stock Exchange witnesses lackluster week

The week ended on August 25, 2023 remained lackluster, with the KSE-100 index losing 547 points to close at 47,671 level.

The anticipation of heightened inflation had a negative impact on the market, fearing an ad-hoc policy rate hike. However, the recent T-bill auction negated that sentiment, with yields largely maintaining their flat trend as compared to the previous auction.

Now the focus is on September 2023 CPI data and the Monetary Policy Committee meeting scheduled for September 14, 2023.

Nonetheless, owing to a week full of result announcements, market participation witnessed daily trading volume averaging at 206 million shares, as compared to the previous month average of 167 million shares.

The current account shifted from a four-month streak of surplus to a deficit of US$809 million, mainly due to an increase in imports (up 33%MoM) and worker remittances (down 15%MoM) during the month.

Foreign exchange reserves held by the SBP eroded by US$125 million to US$7.9 billion as of August 18, 2023. Additionally, due to import pressures and dividend repatriations, PKR depreciated by 1.74%WoW, to close at PKR301 against the greenback.

Furthermore, throughout the trading week, the gap between the interbank and open market exchange rates remained 4% to 5%. According to the IMF agreement, this gap should not be ±1.25% for 5 consecutive days.

Other major news flows affecting market during the week included: GoP borrowed US$2.89 billion borrowed from multiple financing sources during the first month of the current financial year, 2) Revised GDP growth under PDM government may turn out to be over negative one percent, 3) Power tariff hike, 4) Banking sector spread decreases by 64bps MoM in July, 5) Power generation was up 5% and cost of generation was down 22 percent, 6) RDA inflows touched US$6.487 billion, but faced headwinds from global rates, 7) Election Commission said election not possible before May 2024.

Synthetic & Rayon, Textile Weaving, and REIT were amongst the top performing sectors, while Cable & Electrical Goods, Pharmaceuticals, and Inv. banks/ Inv. cos./ Securities cos. were amongst the worst performers.

Net selling was recorded by Individuals with a net sell of US$8.2 million. Insurance absorbed the selling with a net buy of US$19.0 million.

Top performing scrips during the week were: SCBPL, HMB, IBFL, BAFL, and MARI, while top laggards included: AGP, PSX, GADT, PAEL, and FABL.

Market is expected to sustain a positive outlook, driven by a series of favorable developments with talks being commenced between the IMF and the caretaker government and the confidence of bilateral partners.

Given the ongoing trend of significant currency devaluation, analysts recommend investors to consider investing in companies with revenue in US$ (Tech and E&Ps). Another viable approach is to focus on companies that offer healthy dividend yields or companies with strong valuations.

 

 

 

 

State Bank of Pakistan raises policy rate by 100bps

On Tuesday, the Monetary Policy Committee (MPC) of State Bank of Pakistan (SBP) decided to raise the policy rate by 100 basis points to 9.75%. The goal of this decision is to counter inflationary pressures and ensure sustainable growth.

Since the last meeting on November 19, 2021, indicators of activity have remained robust, while inflation and the trade deficit have risen further due to both high global prices and domestic economic growth. In November, headline inflation increased to 11.5%YoY.

Core inflation in urban and rural areas also rose to 7.6 and 8.2 percent, respectively, reflecting domestic demand growth. On the external side, despite record exports, high global commodity prices contributed to a significant increase in the import bill. As a result, November trade deficit rose to US$5 billion.

The MPC noted that recent data releases confirm that the emphasis of monetary policy on moderating inflation and the current account deficit remains appropriate. Following Tuesday’s rate increase and given the current outlook for the economy, and in particular for inflation and the current account, the MPC felt that the end goal of mildly positive real interest rates on a forward-looking basis was now close to being achieved. Looking ahead, the MPC expects monetary policy settings to remain broadly unchanged in the near-term. The MPC key trends and prospects in the real, external and fiscal sectors and the resulting outlook for monetary conditions and inflation continue to upset.

Real sector

High-frequency indicators of domestic demand released since the last meeting, including electricity generation, cement dispatches, and sales of fast-moving consumer goods and petroleum products, and continued strength in imports and tax revenues suggest that economic growth remains robust. The outlook for agriculture continues to be strong, supported by better seed availability and an expected increase in the area under wheat cultivation. Meanwhile, robust growth in sales tax on services also suggests that the tertiary sector is recovering well. While some activity indicators are moderating on a sequential basis, partly as a result of recent policy actions to restrain domestic demand, growth this fiscal year is expected to be close to the upper end of the forecast range of 4 to 5 percent. The emergence of the new Coronavirus variant, Omicron, poses some concerns, but at this stage there is limited information about its severity. The MPC noted that Pakistan had successfully coped with multiple waves of the virus, which supported a positive outlook for the economy.

External sector

Despite strong exports and remittances, the current account deficit has increased sharply this year due to a rise in imports, and recent outturns have been higher than expected. Imports rose to US$32.9 billion during July-November period of FY22 as compared to US$19.5 billion during the same period last year. Around 70% of this increase in imports stems from the sharp rise in global commodity prices, while the rest is attributable to stronger domestic demand. Due to the higher recent outturns, the current account deficit is projected at around 4% of GDP, somewhat higher than earlier projected. In the near term, monthly current account and trade deficit figures are likely to remain high, but expected to gradually moderate in the second half of FY22 as global prices normalize with the easing of supply disruptions and tightening of monetary policy by major central banks. In addition, recent policy actions to moderate domestic demand―including policy rate hikes and curbs on consumer finance―and proposed fiscal measures should help moderate growth in import volumes through the rest of the year.

The MPC emphasized that the monetary policy response to arrest the deterioration in the current account deficit has been timely. Together with the natural moderating influence of the flexible and market-determined exchange rate, the MPC felt that the response would help achieve the goal of a sustainable current account deficit this fiscal year. Moreover, the MPC noted that the current account deficit is expected to be fully financed from external inflows. As a result, foreign exchange reserves should remain at adequate levels through the rest of the fiscal year and resume their growth trajectory as global commodity prices ease and import demand moderates.

Fiscal sector

During July-November FY22 period, revenue growth has been strong, driven by a broad-based and above-target increase in FBR tax collections. However, lower petroleum development levy (PDL) collection led to a decline in non-tax revenues. On the expenditure side, development spending and subsidies and grants have increased significantly during this period. The government intends to introduce legislation to increase revenues through elimination of certain tax exemptions and reduce current and development expenditures. These measures would help moderate domestic demand, improve the current account outlook, and complement recent monetary policy actions.

Monetary and inflation outlook

Since the last meeting, despite a moderation in consumer loans, overall credit growth has remained supportive of growth. Meanwhile, across all tenors, secondary market yields, benchmark rates and cut-off rates in the government’s auctions have risen significantly. The MPC noted that this increase appeared unwarranted.

The momentum in inflation has continued since the last MPC meeting, as reflected in a significant increase in both headline and core inflation in November. Due to recent higher than expected outturns, SBP expects inflation to average 9 – 11 percent this fiscal year. The pick-up in inflation has been broad-based, with electricity charges, motor fuel, house rent, milk and vegetable ghee among the largest contributors. On a sequential basis, inflation rose 3 percent (MoM) in November. Looking ahead, based on this momentum and the expected path of energy tariffs, inflation is likely to remain within the revised forecast range for the remainder of the fiscal year. Subsequently, as global commodity prices retrench, administered price increases dissipate, and the impact of demand-moderating policies materializes, inflation is expected to decline toward the medium-term target range of 5 to 7 percent during FY23. The MPC will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability and growth.

 

Pakistan Stock Exchange Benchmark Index Declines 3.4%WoW

Moving along the trend set in motion in previous week, Pakistan Stock Exchange posted negative performance throughout the week. On last trading day of the week ended on 24th September 2021, bench mark index closed at 45,073 points, touching a low of 44,788 points. 

During the outgoing week, the index cumulatively lost 1,562 points or 3.4%. A 25bps hike in interest rates by the central bank suggests further hikes in future.

Other major news flows during the week included: 1) the central bank tightening regulations on consumer financing and mandating banks to share 5-day import payments schedule, 2) the GoP considering re-imposing higher regulatory duties to curb auto imports, 3) Petroleum division proposing to increase gas prices by up to 35 percent, 4) Pakistan planning to issue international Sukuk in October 2021 to raise US$1.5 billion and 5) EU extending GSP+ status for Pakistan with six new conventions.

Volumes relatively dried up with average daily turnover sliding to 383.5 million shares as against 400.1 million shares a week ago. Major activity tilted towards main board items. Pressure was witnessed across sectors, with Engineering hit the most, registering a decline of 6.3%WoW followed by Auto Assemblers, down 5.9%WoW. Refineries emerged the worst performer (down 17.2%) over uncertainty on refinery policy. The resignation of SAPM Tabish Gauhar, the architect of the Policy, hints towards possible delays in finalization of the Policy.

Flow-wise, Foreigners and Others played a major role in absorbing selling pressure by other participants, with cumulative net inflow at US$12.6 million, while Individuals and Companies cumulatively squared US$11.0 million positions. The major gainers were: HMM, PSEL, SCBPL, ARPL and SNGPL, while laggards were, ANL, ATRL (down 17.9%WoW), BYCO, PAEL and BNWM.

Market is likely to remain volatile in the near term, direction to be determined by IMF review. Reversing certain incentives such as in the case of Autos should be viewed as material positive particularly from a macro perspective, easing pressure on external account. Moreover, investors should adopt a top-down approach to investing where possibility of further interest rate hikes could bring Banking Sector into limelight, while Techs and Textiles (on currency depreciation where stronger earnings are yet to be priced in) are other sectors of interest. Techs may remain under pressure owing to structural impediments faced by one of the companies. The weakness should be taken as an opportunity to accumulate.

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.