During September’14 the KSE-100 Index was up by 4.0% ending the quarter with a muted gain of 0.25%, the lowest quarterly returns since 4QFY12. The sequential recovery was due to some improvement on the political front coupled with strong corporate profits. This was supported by continued strong foreign flows, with net FPI inflow of US$53 million during the month under review, taking 3QCY14 and 9MCY14 net inflow to US$157 million/US$429 million respectively.
At present the Index trades at a discount to the region. Going forward, analysts expect the market to remain range-bound over the next few months although selected names such as UBL, BAFL, NML, LUCK, FFC and HUBC may outperform. Key risks for the market are: 1) further rise in political noise and 2) failure to meet external account targets where analysts flag the upcoming OGDC offering as a key litmus test.
After shedding 5.8% in August, the Index rose by 4.0% in September due to some improvements on the political front with PTI/PAT agreeing to withdraw from the high security zone in Islamabad. This was despite adverse developments such as 1) the cancellation of the Chinese President’s scheduled visit, 2) floods in Punjab and 3) stalled IMF talks; in the backdrop of pressure on foreign exchange reserves that led to Pak Rupee depreciating by 4.1% in the month against the US Dollar.
While Oil & Gas and Telecoms remained laggards due to pressure in OGDC and decline in incoming international traffic, respectively, most main board sectors witnessed a rebound. Specifically, Textiles and Electricity were up ahead of anticipated strong 3QCY14 results. That said, sharp outperformance was posted by some of the smaller sectors including Pharmaceuticals and Autos.
Average daily traded volume/value for the month under review was 151 million/US$77.5 million as compared to 133.5 million/US$66.5 million in August, the sequential rebound emanating from a low base (Ramadan). Foreign flows remained on track with net FPI inflow of US$53 million, bringing 3QCY14/9MCY14 net inflow to US$157 million/US$429 million. On the local front, Banks and Individuals remained net sellers during the month under review while Mutual Funds encouragingly invested a net amount of US$18 million.
After a flat 3QCY14, the Index was up 18%CYTD. With regional markets coming off in the previous month, Pakistan Market’s average discount to peers has diluted to 29%. Analysts expect the market to remain range-bound over the next few months with stock selection to become increasingly important. Investors can also look to participate in OGDC’s upcoming offering. Key risks for the market are 1) further rise in political noise and 2) failure to meet external account targets.