During the week ended 18th December 2015 benchmark KSE-100 Index continued its downward trend slipped below 33,000 and closed at 32,777 points, down 0.82%WoW. Activity in the market failed to recover as average trading volumes for the week declined to 139 million as compared to 181 million recorded a week ago.
Key news flows during the week included: 1) the US Federal Reserve raised interest rates by 0.25% for the first time since 2006, 2) APCMA requesting the MoF to impose regulatory duty on cement imports from Iran to facilitate the local industry, 3) US Fed barring HBL-New York branch from conducting any US$-clearing transactions or accepting any new accounts for US$-clearing due to non-compliance with US anti-money laundering laws, 4) news report highlighting concerns regarding NBP as the entity will likely be unable to recover the loan in 2012 amounting to Rs12 billion extended to Omni Group, 5) PPL announced two separate oil and gas discoveries during the week at its exploration wells in District Matiari of Sindh, testing confirmed 56mmcfd of gas and in Dhok Sultan X-1 in Punjab with initial testing confirmed oil of 468bbl/day and 0.61mmcfd of gas and 6) OGDC bidding for the sale of Premier Oil Pakistan Holdings B.V. (POPH).
Scrips that led the bourse included: PPL, SHEL, 3) PSO, PSMC and 5 DGKC while laggards were: FATIMA, HBL, NBP, LOTCHEM and ABL. Foreign investors remained net seller with outflows for the week amounting to US$10.3 million, slightly higher than US$10.2 million in the prior week. The market is expected to remain volatile next week where some pressure may emanate from futures settlement on account of a shortened roll‐over week due to upcoming holidays. The IMF board is likely to approve US$500 million disbursement following the ninth review that should take country’s foreign exchange reserves beyond US$21 billion next week.
As per recently released figures by Pakistan Automotive Manufacturers Association (PAMA), country’s auto sales for 11MCY15 showed a rise of 47%YoY totaling to 168,212 units sold. Remaining stagnant, MoM figures, industry car sales at 15,724 units remained in‐line with the seasonality factor. However, cumulative figures for 4MFY16 local car sales reflect sturdy growth of 54%YoY. Rozgar scheme driven sales accompanied by a general pickup in LCV offtake pushed PSMC to record the highest sales growth over 4MFY16 as it sold 58,098 units (higher by 97%YoY). Secondly, tail‐end of the new model effect continues to propel growth in volumes for INDU as the company recorded sale of 25,743 units (up by 70%YoY). Additionally segment‐wise growth showcases a burgeoning demand side scenario where 800 and below 1000cc segment grew by 67%YoY, followed by 1300cc and above segment at 40%YoY and 1000CC segment sales grew by 26%YoY during 11MCY15. PSMC is likely to benefit from lower input costs and higher sales. Additionally the dominance of the OEM in the rapidly growing 1000cc and below segment may boost top as well as bottom-line
And finally the US Fed chose to increase interest rate by quarter percent. The local bourse came under pressures due to selling by foreign funds. The trend is likely to continue beyond a hike where an inflection point would depend on timing of further hikes.
That said, Pakistan’s possible entry in the MSCI Emerging Market classification expected next year should encourage net foreign inflows. That being said, in view of an imminent US Fed Funds rate hike, analysts advise caution over the short term where expected pressures on the PkR/US$ parity should bode well for export oriented and dollar linked sectors.
Latest statistics released by the SBP indicate that monetary aggregates maintained their upward trend in FY16 where broad money (M2) supply increased to Rs11.48 trillion to reflect growth of 13.55%YoY as of 4th December 2015. This remains higher than 13.2%YoY M2 growth witnessed during the past fiscal year, which was driven by higher GoP borrowing from the private sector (Rs1.3 trillion in FY15) countering positives from retirement of GoP’s borrowing from the SBP.
NFA/NDA ratios have also improved on the back of higher foreign inflows (IMF tranches, project loans and Eurobond issue) as well as restricted borrowing from the SBP. However, with interest rates now at their lowest levels banking sector interest in PIBs has started to decline. That said, private sector credit remained on downward trajectory to Rs57.7 billion in FY16TD as compared to Rs114.6 billion during the corresponding period where the country’s structural issues remain a key deterrent to higher real sector investment. These monetary trends hold mixed implications for the banking sector where failure of pick up in private sector credit remains a valid concern. That said, room for loan growth remains where banks are likely to push for the same in order to compensate for tighter spreads amid absence of high yielding PIBs.