All-time high trade deficit leads to blood path in PSX last week and recommendation for next week

The market commenced on a positive note given fall in the international oil prices amid outbreak of new COVID-19 variant “Omicron”, subsiding concerns over inflation. Moreover, approval of Saudi fund of USD 3bn and expectation of it arriving soon kept the sentiment high. Furthermore, the government paid PKR 135bn as second installment to the IPPs under 1994 policy, which further boosted the momentum. In addition to this, the market reclassified to Frontier Market during the week, which was expected to bring in foreign inflows. However, the trade numbers released by the PBS for the month of Nov’21 posted a massive jump in the imports to USD 8bn (up by 94% MoM) during the month, taking the trade deficit to an all-time high of USD 5.1bn (up by 3x MoM) causing bloodbath in the index (marking worst single day fall after 20 months). This along with more-than-anticipated CPI figure of 11.53% YoY (Nov’21), created panic in the market as concerns over massive hike started brewing up in upcoming monetary policy in Dec’21. Alongside this, Pak Rupee depreciated to all time low of PKR 176.77, which further fueled to the bearish sentiment. Albeit, the market closed at 43,233 points, losing 881 points (down by 2% WoW).

Sector-wise negative contributions came from i) Technology and Communication (198pts), ii) Cement (165pts), iii) Oil & Gas Exploration Companies (101pts), iv) Textile Composite (68pts), and v) Food & Personal Care Products (67pts). Whereas, sectors which contributed positively were i) Commercial Banks (59pts), and ii) Oil & Gas Marketing Companies (20pts). Scrip-wise negative contributors were LUCK (124pts), TRG (107pts), SYS (65pts), MARI (62pts) and POL (44pts). Meanwhile, scrip-wise positive contribution came from HBL (67pts), PSO (52pts) and UBL (40pts).

Foreign selling continued this week, clocking-in at USD 62.8mn compared to a net sell of USD 39.2mn last week. Major selling was witnessed in Commercial Banks (USD 27.2mn) and Cement (USD 14.8mn). On the local front, buying was reported by Companies (USD 25.7mn) followed by Individuals (USD 16.0mn). Average volumes clocked-in at 319mn shares (up by 21% WoW) while average value traded settled at USD 90mn (up by 51% WoW).

Other major news: i) Forex reserves down $275m, ii) Cut-off yields on T-bills increased by up to 229bps, iii) Circular debt rising by Rs35 billion per month, iv) ECC grants increase in OMCs’, petrol dealers’ margin and v) Oil sales jump 17.6pc in July-November.

Outlook

With the Saudi Funds expected to arrive anytime soon, the market can rebound and Pak Rupee slide will be contained. Keeping in view macro-economic concerns investors are expected to have a cautious approach. Albeit, we expect the market to be range bound in the upcoming week. Our preferred stocks are FABL, EPCL, PSO, OGDC, HUBC, HBL, MCB, LUCK, AGHA, FFC, ENGRO, INDU, PTL, SNGP, UNITY, HTL, and ILP. The KSE-100 is currently trading at a PER of 4.6x (2022) compared to Asia Pac regional average of 14.7x while offering a dividend yield of ~8.8 versus ~2.2% offered by the region.

Courtesy- AHL Research

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