· Pakistan is set to return to double digit interest rates after just 9 months, with Monetary Policy Committee (MPC) of the SBP due to meet tomorrow, likely increasing policy rate by 125-150bps. The policy setting is likely to weigh upon buildup in trade deficit (Nov’21 at US$5.0bn) along with surprise in inflation during the previous month.

· Inflation is likely to remain in double digits in the remainder of this fiscal year (avg. 12.3%YoY) after venturing into double digits in Nov’21 (11.53%YoY) where in the near term, we expect currency devaluation’s impact — likely translating into prices with a lag of 4Ms — to become more pronounced and compounded by gradual increase in petroleum levy (first round impact possibly diluted due to ease-off in global oil prices).

· Market is likely to remain range bound in the coming months until the transmission of fiscal and monetary adjustments begin to reflect in underlying numbers, in our view. The threat of new COVID-variant, “Omicron” and coldest winter in EU increasing COVID case load in the region has put downward pressure on global commodities (TRJ Commodity Index down 6.6% from peak), possibly shortening the timeline for complete transmission of macro adjustment into economic metrics.

· With developments on macro front remaining fluid, we advocate investors taking a longer term horizon in mainboards, preferring value over growth, while limiting tactical adjustments. We continue to like Banks (on higher interest rates), Cements (on declining coal prices improving earnings outlook while cut in PSDP is unlikely to have material implication demand outlook), and Power and select-OMCs (PSO) on circular debt payments.

Courtesy – AKD Research