Pakistan Stock Market Review

KSEWith lackluster trading activity during the week ended 26th June (average daily traded volumes was 357.6 million shares, down by 22%WoW), the KSE‐100 Index went down by 1.86%WoW to close at 33,885 points. While Ramadan shortened trading hours, lack of triggers further aggravated the underperformance. Key news flows during the week included: 1) the approval of Finance Bill 2015-16 by the National Assembly, 2) World Bank approving release of US$500 million to Pakistan on completion of development policy credits, 3) outstanding dues of gas utilities against Independent Power Plants (IPPs) reaching Rs120 billion and 4) the GoP raising Rs89.6 billion in recently held T‐Bill auction with cut‐off yields for 3, 6 and 12 months papers coming in at 6.93%, 6.951% and 6.97% respectively. Top Gainers during the week were: NCL, SSGC, AKBL and UBL. Whereas OGDC, KEL, EFOODS and PTC ended up as laggards. Foreigners remained net sellers for the week offloading US$16.1 million worth of equities. Volumes are anticipated to remain subdued as Ramadan effect continues to keep the index range bound. However, positivity on the macro front is expected on release of US$506 million tranche by the IMF. Continued underperformance by heavyweights Oil & Gas and Banks, will keep market under pressure during the next week.

Following a decline in industry urea sales in 4MCY15 on account of seasonal downturn, May’14 stats depict resumption in sales according to the data released by National Fertilizer Development Center (NFDC). The sector managed to sell 421,000 tons of urea, up 15%MoM/3.3%YoY as against sales of 408,000 tons during May’14. Analysts believe this increase in sales is attributable to the Kharif season, kicking off from middle of May’15 as farmers geared up for sowing cotton crop. That said, during 2QCY15TD urea offake has gone up by 18%YoY, with local urea sale witnessing an increase of 14%YoY. Despite uncertainty regarding gas price increase, the listed fertilizer sector has outperformed the broader market by 14% CY15TD. Going forward, we expect positivity to continue on the back of historically higher sales volume during 2QCY15 where Jun’14 offtake to likely hit the 600,000 tons mark, taking 2QCY15 urea offtake to over 1.3 million tons. With full impact of EFERT’s concessionary gas prices coming into play from 2QCY15 and no increase in gas prices as till end of Jun’15, analysts believe profitability for the sector to remain on the higher side.

With deadline of Jun 30th for the conclusion of Iranian nuclear deal fast approaching there are concerns within the global community as to how things would turn out. In addition to this, there are apprehensions from Iran that if the deal is struck successfully how things would pan out with respect to different sanctions imposed on it. In this regards, the US and its negotiating partners (France, Germany, Russia, UK and China) have so far been on a different wavelength as compared to Iranian counterpart. This is mainly due to Iranian leaders’ demand for an immediate removal of various sanctions imposed on the country. It is understood that the western powers prefer to see Iran initiating rollback of its nuclear program rather than immediately rewarding the country by removing sanctions. With currently things at loggerhead, the discussions are likely to move beyond the aforementioned deadline with the Iranian president himself stating that such matters should not be time barred. If struck successfully, this deal would enable Iran to pump increased quantities of oil into the international market, which in tandem is likely to spark another round of market share war where oil prices at US$60‐65/barrel levels might prove to be more of a ceiling than a floor. Every US$5 fall in oil prices negatively impacts annualized earnings of POL, OGDC and PPL by 5.7%, 4.9% and 3.3%, respectively, On the positive side, the same decrease in oil prices shaves of Pakistan’s current account deficit by 15‐20bps.

Planning Commission recently released the National Annual Plan FY15‐16, based on the seven pillars set out in the commission’s ‘Vision 2025’ initiative. Setting out a GDP growth target of 5.5% in FY16 (4.24% in FY15), the plan seeks to unlock growth primarily through infrastructure and energy investments ‐ broadly resonating with the recently announced Federal Budget. While real sector targets seem ambitious, analysts expect government focus on investments under the framework of China‐Pakistan Economic Corridor (CPEC) ‐ positively impacting industrial growth. Energy sector projects to be set up as part of the corridor, remain a key highlight of the plan with 1,027MW expected to be added to the national grid during FY16. While achievement of targets set under the plan will be a challenge for the GoP, analysts remain optimistic about the country’s progress towards economic stabilization. This should continue to drive macro‐rerating theme for the market, where analysts continue to prefer cyclical with cements and allied sectors continuing to be key beneficiaries of near‐term infrastructure investments

Textile exports for the month of May’15 continued their downward slide, leading to a decline of 5.9%YoY to US$1.12 billion, taking 11MFY15 textile exports to US$12.25 billion, down 1.7% YoY. With heavyweight textiles (57% of exports) on a downtrend the country’s total exports also plunged by 7.5%YoY to US$1.95 billion compared to US$2.11 billion during May’14, highlighting the negative impact of low international commodity prices. Consequently, exports for 11MFY15 were US$21.87 billion, registering a decline of 5.3%YoY from US$23.09 billion in 11MFY14. Within textile exports, decline was observed across all major categories of both low value and high value added segments. High value added segment recorded a dip of 2%YoY while low value segment decreased 14.1%YoY. Supply of cotton in both local and exporting markets by regional competitors, mainly India, continues to test the Pakistani textile manufacturers. Already facing dull demand from major consumers like China, this excessive supply is exerting undue pressure on the local industry. With FY16 budget ending up as a non‐event for textile players, and fundamentals appearing weaker (dull demand dragging exporting numbers and competitors forcing local players to compromise on margins).









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