Interest in equities at the local bourse remained subdued amid thin volumes and low participation with the index hitting highs and lows of 45,732 pts and 45,441 pts, respectively, to conclude at 45,676 level (↓404 pts or 0.9% WoW). The week started on a negative note amid the ongoing tensions between the US and Russia over Ukraine. As a result, equity markets all over the world faced uncertainty and succumbed to selling pressures. Furthermore, news regarding oil prices surging past USD 95/bbl worsened the case for Pakistan with further questions marks being raised over inflation and CAD. However, towards the end of the week sentiment improved as talks between Russia and USA continued and oil declined to USD 90/bbl. Furthermore, passage of WACOG bill through Cabinet was also well received as it meant streamlining of cost of gas across the country with positive implications on E&P’s, OMC’s, Fertilizers and Utilities. Due to low participation earlier in the week, average traded volumes declined to 85.1Mn shares (↓13% WoW), whereas daily traded value slid to USD 20.6Mn (↓38% WoW).
Range bound activity witnessed amidst global and macroeconomic concerns: Ongoing geo-political tensions between Russia and US over Ukraine have weighed heavily on financial markets across the globe. Similarly, the local bourse also succumbed to selling pressures while showcasing lackluster activity throughout the week. Apart from the Ukraine crisis, limited investor participation can be attributed to i) oil prices surpassing USD 95/bbl fueling concerns over inflation and CAD, ii) consecutive monthly decline in auto sales (down 18% MoM in Jan-22), iii) slowdown in remittances to USD 2.1Bn (↓15% MoM) and iv) increase in petroleum prices to an all-time high of PKR 160/liter leading to risks over inflation. On a positive note, PKR stood ground against the USD to close at PKR 175.2 (↓0.4% WoW) despite a WoW decline in SBP’s reserves. Moreover, the govt. revised down housing finance rates by 1% across all slabs in order to ensure that financing is available to end consumers at subsidized rates.
Surging commodity prices continue to weigh in on investor sentiments: Multi-year high commodity prices continued to weigh down heavily on financial markets across the globe as oil surpassed USD 95/bbl. On the other hand, coal also continued its rise clocking in at USD 196/ton. The pressure was also felt on the local index with concerns raised over ballooning CAD in the upcoming months. Going forward, key indicator of commodity prices will be the outcome of the ongoing tensions between Russia and US. Any positive development in this regard could lead to a decline in oil prices which will resultantly bode well for Pakistan.
Major data releases during the week included: 1) Auto sales for the month of Jan’22 clocked in at ~26k units, (↓18% MoM, ↑14% YoY), 2) worker’s remittances receded to USD 2.1Bn in Jan’22 (↓15%/5% MoM/YoY), 3) govt. raised PKR 99.5Bn through fixed rate PIB auction as cut-off yields declined by 9-11 bps, 4) textile exports clocked in at USD 1.6Bn (↑17% YoY) in Jan’22, taking 7MFY22 textile exports to USD 10.9Bn (↑25% YoY), 5) FX reserves fell by USD 231Mn to close at USD 23.5Bn (↓0.8% WoW) and 6) passage of WACOG bill through Parliament to ensure smooth supply of gas to all consumers and industries while reducing reliance on indigenous gas.
Outlook: We reiterate our favorable outlook on local equities given attractive market valuations and the ongoing corporate results season. Moreover, we believe that PKR devaluation has peaked out and will remain stable around the ~PKR 175/USD mark in the near term. However, investors will likely show concern on continuous surge in global commodity prices and uncertainty on the geopolitical front. Consequently, any short-term dips should be taken as an opportunity to accumulate scrips in Banks, E&P’s, Fertilizers, Technology and Textiles in our view.
Courtesy – BMA Research