Fully cognizant of the unease prevailing at equity market, delegation of leading businessmen and brokers comprising of Bashir Jan Mohammad, Arif Habib, Aqeel Karim Dhedhi, Ali Jamil and Sulaiman Mehdi, Chairman Pakistan Stock Exchange (PSX) met Dr. Abdul Hafeez Sheikh, adviser to Prime Minister on Finance in Karachi. Others also present on the occasion were Chairman, FBR, Syed Shabbar Zaidi and Dr. Khaqan Najeeb. They discussed the overall macro-economic situation of the country and its impact on the capital markets. Keeping in view the present depressed market sentiment, the delegation suggested various measures for strengthening the Market. They suggested that the proposed draft of Listed Companies (Buy Back of Shares) Regulations, 2019, be approved on priority and the limit of 10% on treasury shares should be enhanced. They proposed to resolve the present issue of ready futures transaction at PSX which is impacting the market volumes. It was recommended that keeping in view the attractive valuations at the PSX a market support fund may be established. The Finance Minister took note of all the suggestions positively and assured the delegation of the government’s full support and cooperation.
The market started the week on a negative note, losing 831 points in the first two trading sessions, as investor’s focus shifted towards potentially strict conditions that will unfold post IMF’s staff level agreement for a US$6 billion Extended Fund Facility (EFF) for Pakistan. The market briefly rallied 1.2% in the third trading session, as news regarding Kekra-1 well nearing its conclusion surfaced as a silver lining in an otherwise dull market, recouping some of earlier losses. However, the excitement quickly died down on upcoming Monetary Policy announcement scheduled for 20th May’19, where rumors of pre-emptive 100-200 bps interest rate hike started spreading the gloom. Meanwhile, 3.6% depreciation of Pak rupee during the latter part of the week further aggravated the overall bearish sentiment. Key news flows impacting the market during the week were: 1) the incumbent government led by Prime Minister, Imran Khan unveiled its first amnesty scheme which offers a 45-day period to whiten undeclared assets, 2) trade deficit declined 13% during 10MFY19, but a 22%MoM increase, due to an upsurge in imports proved disappointing, 3) large scale manufacturing growth shrank by 10.6% for March 2019, taking the cumulative LSM growth for 9MFY19 to negative 2.93%, indicating a slowdown in economy and 4) an agreement with IMF to increase electricity tariffs by 15% for consumers using over 300 units. PAMA also released auto numbers for April 2019 during the week, which depicted a 21%YoY decrease in sales owing to mounting prices, higher interest rates, weak currency, and overall economic slowdown. Performance wise, energy sector remained in the limelight with HUBC, PPL and POL being the major gainers, while laggards included: DGKC, MLCF, PIOC and ASTL. According to equity analysts, medium term market performance hinges over the upcoming Monetary Policy announcement scheduled on 20th May 2019 and news flow regarding budgetary measures. Meanwhile, any positive news regarding the success at Kekra-1 well could be a surprise amidst an otherwise bearish sentiment.
The total liquid foreign exchange reserves held by the country were reported at US$15,894.4 million as on 10th May 2019.The break-up of the foreign reserves position was: 1) reserves held by State Bank of Pakistan (SBP) at US$8,845.6 million and 2) net reserves held by commercial banks at US$7,048.8 million. During the week under review reserves held by SBP decreased by US$138 million to US$8,845.6 million due to external debt servicing and other official payments.
During April 2019 total industry sales of automotive assemblers declined to 19,868 units, down 15%MoM. This fall was mainly due to passenger car sales down14%MoM, LCV and pickups offtake also down 21%MoM. Cumulative 10MFY19 total car sales of 210,821 units were down and down 3%YoY as compared to 10MFY18, LCV/Truck sales fell by 34%YoY, coming off a cliff , 10MFY18 LCV sales of 35,359 was a peak for the segment.
Mehran sales decline was reflected in 800cc and below segment posting 31%MoM decline, while 1,300CC and higher sales remained low due to the bank on sales to non-filer, 1,700CC and higher vehicles, despite imposition of 10% FED levy sustained smaller declines 6%MoM. Moreover, cumulative numbers show the 1000CC segment strengthened its position.
A tough demand environment (inflation suppressing consumer discretionary spend) mixed with operational headwinds (rising cost of borrowing and PkR weakness). With its competitive ‘moats’ being tested, INDU’s investment thesis gets further traction from planned segmentation of its Corolla variant (1,300CC new model launch of Vios), where prevailing Corolla sales indicates significant new-model sales bump on launch.
PSMC sold 10,789 units in April’19, was dampened by LCV segment as Ravi/Bolan sales fell and Mehran’s winding down. Recent models fared better where Cultus sales moderated YoY declined in a month with an unfavorably high-base for the OEM. Cumulative sales for the OEM crossed 110,358 vehicles, where growth was seen in Wagon R/Cultus sales, whereas Bolan/Ravi sales declined and the lag between discontinued Mehran sales and Alto deliveries (expected in June 2019) make for a bleak sales outlook.
INDU 10MFY19 sales of 55,304 units was up 5%YoY due to 12%YoY rise in Corolla sales, on track to meet our FY19 target of 59,000 units (up 14%YoY) re-affirming hypothesis of sales remaining resilient. That said, Fortuner/Hilux sales continue their downtrend as they come-off highs established during last year’s pre-election buying spree.
HCAR monthly offtake for the OEM continued to slide with the launch of its Civic facelift during April suppressing sales further, while BRV had a better month with 526 units sold. Cumulative 10MFY19 offtake of 38,724 units fell 11%YoY, with Civic & City variants softening under regulatory headwinds. A tough demand environment (inflation suppressing consumer discretionary spending), along with operational headwinds (rising cost of borrowing and rupee weakness pushing prices) paint a difficult backdrop.