Tepid trading activity was witnessed during the week ended 22nd October (Friday being a holiday). The benchmark of Karachi Stock Exchange, KSE-100 Index closed almost flat. Average daily trading volume was down 10.7%WoW due to lack of triggers. News flow affecting the market during the week were: 1) imposition of 10% Regulatory Duty on Indian yarn imports and 100bps cut in ERF and LTFF under textile incentive package, 2) meeting of Pakistan’s PM with the US President to discuss the country’s relationship with India and other security related issues, 3) release of Rs150.7 billion by the GoP under PSDP from budgeted Rs700 billion, 4) current account balance posting a US$306 million surplus in September and 5) OGRA’s rejection of SNGPL’s plea for a Rs190/mmbtu (47%) increase in the gas tariff, to allow the utility to meet its Final Revenue Requirement of Rs84 billion. Despite unexciting activity at bourse, HASCOL, SNGP, DAWH, BAFL and HMB were the top performers on better than expected earnings performance, whereas EPCL, PTC, MLCF, DGKC and MEBL were major losers. Analysts expect the market to be driven in the short term by the earnings season as results have already started pouring in. The focus is likely to shift to selected companies belonging fertilizer, cement, textiles and auto sectors. Strong results by the good performing textile companies should add to the recent interest in the sector after announcement of the textile relief package. There is also room for price performance in selective banking scrips on potential positive surprises from capital gains. Moreover, any uptick in volumes post Ashura Holidays can help the index to register some gains.
With the receipt of US$375 million under the Coalition Support Fund (CSF), current account balance recorded a surplus of US$306 million in September’15 as against a deficit of US$240 million in August’15). Consequently, current account deficit (CAD) for 1QFY16 was registered at US$109 million, 93%YoY lower than US$1.63 billion recorded in 1QFY15. Moreover, low international oil prices helped trade deficit contraction (down 25.9%YoY) with imports for the month coming off by 23.3%YoY. Exports however continued their negative trend to post a decline of 20.3%YoY in September’15. Remittances remain a key support to the country’s Balance of Payment (BoP) position where September’15 remittances were reported at US$1.77 billion up 1.57% YoY. Going forward, analysts remain optimistic on the BoP position during FY16 supported by low oil prices, further CSF payments and a strong foreign exchange reserve outlook currently reported slightly US$20 billion). The total liquid foreign reserves held by the country were reported around US$19,921 million on 16th October this year. The break-up of the foreign reserves was: reserves held by the State Bank of Pakistan (SBP) around US$15,020 million and net reserves held by commercial banks at US$4,901 million. During the week under review reserves held by SBP decreased by US$84 million as it made payments of US$113 million on account of external debt servicing.
Cotton arrivals as of 15th October this year have witnessed a sizable decline mainly attributable to the ongoing rains and insect and curl leaf virus attacks. Arrivals were to the tune of 4.66 million bales as compared to 5.34 million bales during the same period last year, down 13%YoY. As a result, local cotton prices were up by 13% to a peak Rs5,932/40kgs. Analysts expect textile players particularly the smaller ones to benefit the most (cotton prices averaged at Rs5,148/40kg in 1QFY16 as compared to Rs5,706/40kg). That said risk of disrupted gas supplies during the winter season and adverse cotton price movement emerge as potential earnings dampener. Additionally, on the exports front, imposition of a 10% regulatory duty on Indian yarn (effective 1st November’15) in order to arrest decline in exports is expected to provide some respite. While concerns remain, analysts believe the recent string of positives ranging from recovery in cotton prices to imposition of regulatory duty can spark a fresh rally in the sector.