Pakistan Stock Market Review

pakistan-flagThe benchmark of Karachi Stock Exchange, KSE‐100 Index closed the week ended 11th December 2015 at 33,049 points marginally up, after losing considerably last week. Trading volumes showed some improvement with average volumes for the week rising to 181 million shares as compared to 155 million shares a week ago. Key news flows during the week included: 1) OPEC’S indecision to maintain its oil output triggered another slide in global crude oil prices where Arablight and Brent declining by 7.7% and 7.4% respectively, 2) the SBP announced auction of GoP three year Ijara Sukuk against Jinnah International Airport Karachi as the underlying Asset with expected borrowing at Rs300 billion, 3) remittances for November’15 rose by 18.5%YoY to US$1.6 billion, while for 5MFY16 cumulative inflow was US$8 billion up by 7.5%YoY, 4) HCAR raised its prices with immediate effect following one percent additional duty on imports, 5) APCMA data showing cement sales growing by 15.5%YoY to 12.2 million tons during 5MFY16, and 6) ECC of the Cabinet allowed the export of 0.5 million tons sugar by March end next year and approved Rs13/kg subsidy on the export. Scrips that led the bourse included: SSGC, LOTCHEM, KEL, UBL and DGKC while laggards were: OGDC, AGTL, MTL, EPCL and NML. Foreign participation also showed some recovery where net foreign outflows for the week amounted to US$10.2 million as compared to net selling of US$16.9 million a week ago. Clarity on the political front post completion of local bodies’ elections and expected stability in exchange rate should keep the market positive. Global oil prices continued downward slide, can keep the heavy Oil & Gas sector index under pressure. Moreover, US Fed’s decision after two-day meeting to consider interest rate hike will be a key event next week that could affect regional flows.
Exchange rate improved to under Rs104/US$ or 1.6%WoW recovering some of its losses since the start of FY16. Resultantly, FYTD depreciation remaining limited to 2.0%. The appreciation has been prompted by greater US$ availability, which was on the back of higher import financing (which has risen sustainably since CY14 to average US$832 million on 3-month deferred payments under FE‐25 facility). Analysts expect the PkR/US$ parity to remain stable over the short‐term on the back of: 1) better Balance of Payment support on a bearish oil outlook post OPEC’s policy review and strong remittance trend and 2) increase in foreign exchange reserves due to expected US$1.4 billion inflows this month. However, key downside risks remain: 1) uncertainty about the US Fed’s rate decision next week, 2) lower foreign investment and 3) pressures from the export sector on eroding regional competitiveness.
Regulatory developments in CY15 have played a prominent role in market’s performance during the year. In this regard, key sectors affected are: 1) Banks through changes in IRC and increased taxation, 2) Fertilizer on re‐imposition of GIDC, gas tariff hike and Kissan Package, 3) Textiles with the announcement of relief measures as part of the Textile Incentive Package, and 4) Pharmaceuticals on finalization of the Drug Pricing Policy 2015 (negotiations are still continuing on some clauses). Going into CY16, regulatory highlights can continue to keep selected sectors in limelight with upcoming policies (Autos, Telecom, Power) driving performance accordingly. Moreover, further increase in gas tariff can adversely impact Fertilizers, Textiles, and already depressed sentiments about Cement sector.
OPEC’s indecision to maintain group oil output in its last week’s policy review has triggered another slide in global crude oil prices where Arablight and Brent have slipped 7.7% and 7.4%, with expectations now firming up for oil to remain lower for even longer period. Remaining a key positive on the macro front, significant improvements are expected on: 1) the Balance o Payment position on lower oil imports and 2) controlled inflation opening up room for continued monetary easing. However, from the market’s perspective this scenario will be a drag on index heavyweight Oil & Gas sector. Additionally, lower interest rates will continue weighing on banking sector’s performance but bodes well for leveraged plays and high dividend yielding companies.

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