Stocks marched past the 47,000 level after a 4-year period this month to close at 47,896 points, up by 8.2% / 3,634 points. Initial exuberance at the local equity bourse was aided by the newly appointed Finance Minister, whose main focus it appears is on achieving sustainable growth and instilling structural reforms through pro-growth measures. Whereas provisional estimates of the GDP in FY21 by the National Accounts Committee (NAC) at 3.94% against a negative 0.47% last year, implying a remarkable turnaround, also triggered market gains. While positivity at the index was also imparted amid a declining trend in the COVID-19 infection ratio, which obliged an ease in lockdown.
Other key highlights this month include i) MSCI’s Semi Annual Review, whereby Pakistan’s weight has increased from 0.016% to 0.023% given inclusion of LUCK and TRG in the EM Standard index, ii) Status quo in State Bank’s monetary policy stance so as to continue providing an accommodative economic environment, iii) Maintenance of current account surplus during 10MFY21 at USD 773mn, iv) Historic high remittances of USD 2,778mn witnessed in Apr’21, up by 56% YoY, v) Tax collection exceeding the PKR 4.143trn for the first time in 11MFY21, vi) Cancellation of governments divestment plan for OGDC and PPL coupled with higher oil prices which ignited buying interest in the E&P scrips, and vii) Development of a local coronavirus vaccine.
In terms of volumes, this was a historic month for PSX as the index posted two new all-time high volumes, and despite Eid break during week two of the month, the index has posted an unprecedented monthly volume of 774 shares.
Major News
Agriculture is among top govt priorities: PM, IMF being urged to relax harsh terms, says minister, Jul-Apr trade deficit widens by 21.60pc YoY, Mining giant NRL considering local IPO, POL products’ prices kept unchanged, Banking sector infection ratio rises to 9.3pc, OGDCL discovers gas from Jandran X-04 well, 3.94pc, Divestment of OGDC, PPL shelved over ‘low share price’, FDI drops 32.5pc to $1.55bln in July-April FY2021, Current account posts $773m surplus in 10MFY21, Circular debt swells Rs260bln in 10 months, and Pakistan develops homemade anti-Covid vaccine ‘PakVac’.
Outlook and Recommendation
With the FY22 Budget announcement scheduled next month, and key budgetary proposals appearing largely positive, we believe the government will aggressively target growth inducing measures so as to continue the ongoing momentum. With revenue (tax) growth expected to achieve a historic high, we believe the government will adopt an expansionary fiscal policy in the upcoming year. Higher allocation for PSDP, ongoing focus on construction (houses / dams), as well as CPEC projects will aid the demand of cement, steel and allied sectors. Whereas relaxation in import duty on raw materials for steel, automobile and export oriented sectors may trigger domestic offtake and translate into improved margins. With corporate profitability appearing robust, we believe the stock market will remain under limelight. Moreover, a key risk for the market – third wave of COVID-19, has largely settled down with a massive improvement observed in infection (4% compared to 10% a month ago). Hence, the market trajectory appears north.
The KSE-100 index is currently trading at a PER of 7.1x (2021) compared to Asia Pac regional average of 16.3x and offering a DY of ~6.8% versus ~2.6% offered by the region. Our top picks are LUCK, ENGRO, OGDC, PPL, FFC, KAPCO, HUBC, HBL, MCB, NML, ILP, PSO, EPCL and UNITY.
Courtesy – AHL Research