Sturdy performance despite tamed volumes, characterized benchmark of Karachi Stock Exchange KSE‐100 during the week ended July 03, 2015. The closed the week at 35,456, recording 4.6%WoW gain. News flows remained largely positive, while major developments included, 1) disbursement of the 7th tranche of US$506 million by IMF raising country’s foreign exchange reserves to an all‐time high of US$18.5 billion, 2) Finance Act 2015 was signed by the President, imposing sales tax, FED and income tax as proposed, while a tax on Bank transactions for non‐filers was imposed, 3) OGRA imposed a Rs17.8 million fine on five OMCs for not maintaining adequate stocks of POL products causing the supply crisis in January this year, 4) FBR failed to meet its thrice revised revenue collection target of Rs2.60 trillion, collected Rs2.58 trillion resulting in a shortfall of Rs25 billion and 5) savings mobilization by the NSS during 11MFY15 reflected strong growth of 77.4%YoY to Rs309 billion. Leaders at the bourse were: MCB, MLCF, DGKC and LUCK, while laggards remained PSMC, ABL, KAPCO and INDU. Average daily turnover of 355.8 million shares tapering by 0.51%WoW. Volume leaders included KEL, DCL, PACE and BYCO. On the geo‐political front, upcoming deadline for US negotiations with Iran, where an agreement is expected to keep global oil prices in check could and weigh on Oil & Gas sectors. However, with results season around the corner, analysts expect volumes to pick up. Also, with the spate of infrastructure projects and upcoming IPOs they expect to see the cements and construction sectors to remain in lime light.
Surprising headline inflation for June’15 rose by 0.62%MoM/3.16%YoY as compared 8.2%YoY for June’14, to end FY15 at an average of 4.56%YoY compared to 8.6%YoY for FY14. Lower than expected inflation came on the back of a limited gain in the food basket which inched up 0.61%MoM due to a decline in the perishable food group. NFNE core inflation for June’15 was recorded at 4.6%YoY as compared to 8.7%YoY for June’14. This took FY15 average to 6.6%YoY as compared to 8.3%YoY for FY14, in line with analysts’ expectations. With the next monetary policy review due shortly analysts expect SBP to maintain the discount rate at 7% (target rate at 6.5%), on anticipations of price pressures to build up during the later part of CY15. With continuous build up in foreign exchange reserves to US$18.5 billion and inflation likely to remain subdued in the next quarter, possibility of a 50bps reduction in discount rate cannot be ruled out.
During 11 months of last financial year banks disbursed Rs439.8 billion under agri loans which is 88% of the overall annual target of Rs500 billion and 31.4% higher than disbursement of Rs334.7 billion during the corresponding period a year ago. The outstanding portfolio of agri loans also surged by 15.5% or Rs43 billion to Rs 320.1 billion at end May 2015 from Rs277.1 billion for the same period last year. The performance of five major banks as a group remained satisfactory as they disbursed Rs229.3 billion or 90.8% of their annual target. As against this two specialized banks (ZTBL & PPCBL) disbursed Rs86.8 billion or 85.4% of their annual targets of Rs 101.5 billion. Fifteen domestic private banks collectively disbursed Rs91.2 billion or 78.9% of their target of Rs115.6 billion. Eight Microfinance banks disbursed Rs27.8 billion or 98.8% of their annual targets. It is pertinent to mention that the four Islamic banks as a group have already surpassed their annual targets by disbursing Rs4.7 billion against the target of Rs2.3 billion during the period under review. Amongst the five major banks bank wise achievement was: HBL (98.8%), ABL (95.6%), MCB (91.1%), UBL (85.1%) and NBP (84.1%). Under the specialized banks category the achievement was: ZTBL (87.4%) and PPCBL (70.4%). Within fifteen domestic private banks the target achieved was, Faysal Bank (95.1%), Sindh Bank (73.6%) and Bank Alfalah (72.7%). However, Bank of Khyber, Standard Chartered Bank and JS Bank surpassed their annual targets of Rs5.0 billion, Rs2.5 billion and Rs0.5 billion respectively during the period.
Cement dispatches during June’15 were likely to grow by 1.5%YoY to 3.27 million tons against 3.23 million tons dispatched in June’14. This muted growth is likely to be on the back of expected 21.7%YoY decline in exports while local dispatches are expected to post a growth of 7.8%YoY. The key reasons behind shrinking exports can be attributed to: 1) stiffer competition from Iran in Afghanistan, the largest buyer of Pakistani cement, as well as sluggish construction activities in Afghanistan due to withdrawal of NATO forces and 2) imposition of anti‐dumping duty by South Africa. However, contrary to the declining exports, local dispatches are expected to keep offtake robust on the back of: 1) the GoP’s focus on infrastructure development, 2) demand coming from CPEC, and 3) central bank’s ongoing monetary easing likely to boost construction activities in the private sector. Analysts expect dispatches to grow to 2.73 million tons during June’15 against 2.54 million tons in June’14, up 7.8%YoY. For the month of June DGKC’s total dispatches are expected to grow by 5.0%YoY, followed by MLCF up4.9%YoY, while LUCK’s dispatches are expected to go down by 2.0%YoY. As a result FY15 total dispatches are expected to touch the historic high of 35.41 million tons as compared 34.3 million tons for FY14, up 3.3%YoY. The major support is expected to come from local dispatches, expected to grow by 8.0%YoY to 28.23 million tons, while exports are expected to be around 7.18 million tons.