Pakistan stock Market Review

KSEAfter touching FY15 index target of 35,000 points, the benchmark KSE-100 Index took a slight breather during the week ended 10th July with a minor decline of 0.97%WoW resulting in closing the at 35,112 level. During the week under review the market saw its average daily turnover rising by 6.3% to 378.15 million shares and average traded value by whopping 23% to US$796.78 million. This subdued Index performance came as a result of selling (US$22.81 million) during the week by the foreigners as they opted to book profit in cement, fertilizer and food sectors. Unlike the region Pakistan did not see any massive selling by the foreigners. During the week foreign institutional investors took fresh long positions in banking sector scrips. The key developments taking place during the week included: 1) Pakistan’s foreign exchange reserves rising to highest ever levels of US$18.7 billion due to release of tranche by the IMF, where the SBP’s reserves swelled to US$13.5 billion and 2) the GoP borrowing Rs103 billion from the banking sector through the latest T-Bills auction. Within broader market major movers included: AICL, BAFL, ICI and HCAR. On the flipside POL, PPL, SSGC and PSO remained laggards.  With only five more trading sessions remaining before Eid Holidays commencing from 17th July, trading activities are likely to remain dull. With market already in a correction phase, investors are likely to stay on sidelines and take fresh positions post holidays where commencement of result season is likely to be a key trigger. While no change in the discount rate expected in the forthcoming monetary policy statement, any positive surprise on this front (low inflation and record high foreign exchange reserves) can be a trigger for leveraged scrips.

In the run up to the recently announced FY16 budget, the KSE-100 index has gained 3.8% which combined with the post budget rally of 3.87% translates into 7.68% return in 31 trading sessions where mutual funds and Corporates remained key buyers. As against this banks emerged the biggest sellers. The aforementioned gains came along with improving volumes as the market’s turnover during the period of the above mentioned gains averaged at 355.8 million shares, which was up 36% when compared against the CY15TD average traded volume of 260.9mn shares. That said, in the previous two trading sessions the market has lost 1.1% of its market capitalization or nearly 391 points on the back of factors that include: 1) another round of dips in international oil prices where the Brent crude’s prices fell sharply and 2) Spillover effect of the regional sell‐off as foreigners have sold US$16.8 million worth of equities in the above mentioned period. Analysts identify the current round of negativity at the market as an overdue correction.

EFOODS has gained a whopping 49% CYTD to trade close to its all time high level of Rs162.8/share. With positive budgetary developments and continued slide in global powdered milk prices on account of large unsold stocks in New Zealand and the buildup of export supplies in Europe, analysts see room for further margin expansion for dairy producers particularly EFOODS that draws 90% of its revenue through sale of dairy products. Apart from margin expansion, analysts continue to remain bullish on the company’s volumetric trend where industry sources hint towards above average sales volume in 2QCY15 (Ramadan factor).This has room to grow further where impetus can come in the form of: 1) new product extensions, 2) commercial launch of powder milk and 3) likely restart of Omung sales in Punjab.

FFBL is expected to announce its 1HCY15 result towards the end of this month, where analysts expect the company to post NPAT of Rs905 million (EPS: Rs0.97) as compared to NPAT of Rs802 million (EPS: Rs0.86) for 1HCY14, up 13%YoY. FFC is also scheduled to announce its half yearly results around the same time and forecast to post NPAT of Rs8.25 billion, up 1.2% YoY mainly due to improved 1QCY15 earnings, which was up 30%YoY. Although gas price increase has remained a major concern for Fauji twins as well as the fertilizer sector, both scrips have managed to record strong price performance as investors picked up high dividend yielding stocks.

As part of the recently published 7th review conducted by the IMF, a spate of energy sector reforms and initiatives aimed at systemically curb the stock of circular debt were revealed. Modalities of the energy sector reform plan include, 1) raising the notified tariff to match costs while passing on debt servicing surcharges for existing stock of circular debt (amounting to Rs615 billion as of March end this year, 2) taking advantage of falling input costs to account for unrecognized system and technical losses in the tariff, 3) streamline penalties and enforcement mechanisms for effective management through an Electricity Act (planned for approval by September and 4) managing market dynamics by privatizing 3 DISCO’s, installing governance and investing in generation and transmission. Overall, the planned reforms leave room for the GoP to take tough decisions on electricity tariff rationalization, where major risks remain legal hurdles and delays in privatization. Furthermore sector wide reform rests on 1) the approval of multi-year tariffs for privatized DISCOs 2) passage of debt from PHCL to individual DISCOs 3) reworking of CPPAG as a separate entity from NTDC and 4) post privatization reforms in planned DISCOs.


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