Pakistan Stock Market Review

pakistan-flagContinuing to test highs, the KSE-100 index closed the week ended on 13th August at 35,937 level, marking a muted decline of 0.79%WoW where political noise driven by resignations by MQM, Sindh’s second largest political party from Senate, federal and provincial assemblies. Other major news flows during the week included: 1) in an unexpected move China devaluated Yuan triggering panic regarding global currency markets and speculative pressures in the domestic market, 2) PIB yields declined by up to 49bps in latest auction with 3, 5 and  10-year cut-off yields at 7.60%, 8.51% and 9.40% respectively, 3) successful completion of the IMF-EFF program’s eighth review, 4) GoP considering revision of threshold for 0.6% WHT on banking transactions from Rs50,000 to Rs100,000 and 5) National Power Construction Company’s (NPCC) strategic sale fetching Rs2.5 billion for GoP’s 88% stake. Leaders at the bourse were SNGP, ICI, MEBL, and LOTCHEM, while laggards included NML, MLCF, HCAR, and BAFL. Average daily turnover for the week saw a 12.8%WoW rise to 333.25 million shares. Additionally, regional volatility hampered foreign buying with reduced foreign inflows for the week totaling US$0.92mn vs. US$4.9mn inflows in the previous week. The market is likely to recover in the coming week as political noise subsides. The ongoing results season should also strengthen sentiments (upcoming result announcements: BAFL, NBP, HBL, HUBC and ENGRO). On the macro front, while Pak Rupee is likely to come under pressures, which is likely to be short-lived where analysts see the Pak Rupee/US Dollar exchange parity remaining close to current levels. Release of US$500 million tranche from IMF, expected at the end of month should continue to support a positive external account outlook.

China devalued Yuan against US Dollar seeking to boost its exports, bringing its currency to lowest levels in three years (Yuan has lost 4% in last two days). This has stirred an episode of uncertainty in the global currency market, where regional currencies have been brought under pressure to remain competitive to China. However, analysts expect Pak Rupee to remain largely immune to the development, barring slight sentimental downtrend. With respect to Pakistan’s external account this is likely to add further pressure to Pakistan’s already ailing exports (FY15 decline at 4.8%YoY), as regional currencies are expected to depreciate. Moreover, China remains a major market for Pakistan’s textiles and clothing exports, where a stronger Rupee against Yuan may further exert pressure on the Pakistan’s cotton exports. Demand of Chinese consumers for Pakistani supplies may take a further hit due to a stronger Rupee along with China’s plan to release additional 4.6 million bales out of its cotton reserve. In this backdrop, analysts maintain their underweight stance on the Pakistani textile sector.

K‐Electric (KEL) is expected to announce its full year financial results. According to an AKD Report the Pakistan’s only integrated compact utility is forecast to post profit after tax of over Rs25 billion (EPS: Rs0.91), depicting growth of 95%YoY with 4QFY15 profit likely to rise to Rs8.79 billion (EPS: Rs0.32), up 32%YoY. Keeping firm on its estimates, and in light of recent approvals from NEPRA regarding 1) raising the consumer end tariff by reducing tariff deferential subsidy, 2) inclusion of additional levies, GIDC, disputed claw back and debt service charge in the monthly fuel adjustment calculation, brokerage house reiterate its investment case for the scrip. Aside from falling T&D losses (due to the expanded US$400mn overhaul package), analysts foresee improved liquidity as collections from customers will now make up a substantial portion of earnings (93% in FY16F vs. 71% in FY15) reducing reliance on tariff differential payments from GoP. KEL remains a proxy for Pakistan’s energy sector reforms and continued urbanization of its largest city.

As per the recently released figures by Pakistan Automotive Manufacturers Association (PAMA), Pakistan’s auto industry sales declined by 11%MoM to 15,900 units in July’15 against 17,800 units sold during Jun’15. Major contributor in this decline came from INDU as the company sold 4,200 units followed by 2,180 units HCAR managed to sell and 9,400 units by PSMC. In addition to cars, Tractor sales were recorded at 1,600 units, down by 59% with MTL selling 743 units and 820 units sold by AGTL.











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