After a dismal performance during February and March where the benchmark index cumulatively lost 12.2% of its market capitalization (US$10.2 billion), sentiments normalized during April ’15. The KSE-100 Index gained 11.5% to close at 33,730 levels. During the month under review the market regained 83% or 3,496 points lost during the previous two months. The disconnection that was evident between the swiftly improving macros and the KSE-100 Index prior to April eased out and the index yielded hefty monthly return after a pause of 23 months.
Key corporate developments taking place during April included: 1) successful sale of the GoP’s stake in HBL, fetching US$1.02 billion out of which around 75% was from the foreign investors, 2) ENGRO’s private placement of 7% of its fertilizer subsidiary’s holding, proceeds of which are likely to be invested in the company’s upcoming energy projects and 3) a 8%YoY growth in 1QCY15 corporate profitability (35%YoY excluding oil & gas), primarily driven by exceptional results posted by the banking sector. With corporate profitability likely to remain robust during 2QCY15, analysts remain bullish on the market over the medium term, but advise caution going into May’15 on the back of pre-budget jitters.
The out-going results season provided the market much needed momentum as investors’ participation on both local and foreign front improved. This led to the market’s average trading volumes rising by 70%MoM to 275 million shares in April as against 162 million shares in Mar’15. Similarly, average traded value increased by 63%MoM to US$140 million in April as compared to US$86 million in March. After more than 2 month of consecutive outflow, April witnessed foreign portfolio investors remaining net buyers at the bourse where they purchased net equities worth US$33.9 million; in addition to US$764 million invested in the GoP’s HBL offering. On the local front, mutual funds led the way with net equities worth US$82.12 million bought in April followed by NBFC’s net buy of US$3.47 million while Banks (US$50.74 million), Individuals (US$38.26 million), Corporates (US$26.05 million) and others (US$4.48 million) remained net sellers.
Within the 10 mainboard sectors (representing 88.3% of the Index’s weight) all barring tobacco remained in the green zone. Amongst the positive yielding sectors, Autos, backed by superior results, led the way, punching in a return of 18.5%MoM followed by Construction and materials (up 13.2%MoM, due to improving gross margins) and Commercial Banks (up 12.2%MoM, on the back of substantial increase in non-funded income). Conversely, Tobacco, Food producers and Personal Goods (Textiles) remained laggards, underperforming the market. As for sideboard sectors (representing 11.7% of market’s capitalization) 17 out of a total of 22 recorded positive growth in April. The gainers were led by Support Services (up 23.7%MoM), Engineering (up 21.4%MoM) and Household Goods (up 17.1%MoM) while Beverages, Media and Telecom trailed behind.
On macro-economic front, improvements continued during April with the major highlight being the Chinese Premier’s visit where MoUs worth US$28 billion were signed. On external front, foreign reserves depicted further strength touching nearly US$17.5 billion on receipt of US$501 million from the IMF and the successful privatization of HBL (total proceeds of US$1.02 billion). Furthermore, current account reduced by 46%YoY to US$1.45 billion on account of CFS payments of US$717 million. Inflation for the month is expected to rise by 2.0%YoY (up 1.2%MoM) primarily owing to a high-base effect which has further strengthened the case for an additional 50bps cut in the upcoming (May’15) monetary policy announcement.
MSCI is scheduled to hold its semi-annual index review in May’15 where analysts see HBL’s inclusion in MSCI FM 100 Index (as the stock’s free float has increased to 45% from previous 10%) is likely to bolster Pakistan’s weight in the index by 110-125bps (Pakistan’s weight in the said index was at 9.56% at March’15 end). This coupled with further improvements in macro-economic environment could possibly increase the velocity of foreign funds to Pakistan over the medium term. With low April15 inflation expectations, room for further discount rate cut looks most probable. However, analysts believe the Index has already priced in a 50bps cut in discount rate.