The market remained volatile throughout the week, with the benchmark KSE100 index losing 782pts or 0.95%WoW, closing at 81,292pts on Friday. However, anticipation of the IMF’s board approval, scheduled for Sep 25th, briefly lifted investor sentiment on Wednesday. However, the positive sentiment was overshadowed by the continuation of foreign selling after the rebalancing of FTSE Russell, political noise, and concerns regarding the potential termination of certain IPPs contracts, inducing selling pressure in power sector heavyweights. Consequently, the power gen & distribution sector significantly declined, eroding 800 points from the index during the week. Moreover, according to the news flows, FBR is expected to post a shortfall of PkR275bn in 1QFY25. To increase tax revenue, govt plans to abolish non-filer status and take strict measures against tax fraud. Furthermore, average daily trading volumes remained down by 17.1%WoW, clocking in at 389.35mn shares, compared to 469.45mn shares traded in the earlier week. SBP-held FX reserves increased by US$24mn weekly to US$9.53bn as of Sep 20th, 2024.
On the currency front, PkR largely remained flat against the greenback throughout the week, closing the week at 277.64. Other major news flow during the week included 1) IMF distanced itself from Pakistan’s decision to arrange a US$600 million commercial loan at 11%, 2) US Assistant Secretary of State Donald Lu praises ‘deeper’ ties with Shehbaz govt, 3) Govt borrowing surges to record high of 100.8%, 4) Farmers to get 251 green tractors and 5) Reko Diq: ADB may approve 3rd-party guarantee by Feb. Sector-wise, Transport, Fertilizer, Inv. Banks/ INV. Cos/ Securities Cos., Leather & Tanneries, and Pharmaceuticals were amongst the top performers, up 7.3%/4.2%/4.8%/2.9%/2.0%WoW. On the other hand, Power Generation & Distribution, Leasing companies, Textile spinning, Engineering & Jute were amongst the worst performers with a decline of 11.4%/6.7%/5.1%/4.6/4.0%WoW. Flow-wise, major net selling was recorded by foreigners, with net sales of US$ 12.44 million, respectively. On the other hand, mutual funds absorbed most of the sales with a net buy of US$16.21mn. Company-wise, top performers during the week were 1) FFC (up 10.2%WoW), 2) GLAXO (up 10.1%WoW), 3) AKBL (up 9.7%WoW), 4) FFBL (up 9.2%WoW) and 5) THALL (up 6.3%WoW), while top laggards were, 1) HUBC (down 13.5%WoW), 2) PGLC (down 12.2%WoW), 3) SML (down 9.7%WoW), 4) MARI (down 9.4%WoW) and 5) KEL (down 8.3%WoW).
Outlook
Following the approval of the IMF’s executive board and the subsequent receipt of the first tranche of US$1.02bn, market sentiment is poised for improvement. Additionally, easing inflation with Sep’24 CPI expected at 7.0%YoY, coupled with ongoing monetary easing, is expected to keep equities in focus, with the market trading at an attractive P/E of 3.6x and a DY of 13.6%. We recommend sectors benefiting from monetary easing and structural reforms, particularly high-dividend-yielding stocks, which are expected to rerate as yields align with fixed-income returns. Our top picks include OGDC, PPL, MCB, UBL, MEBL, FFC, PSO, LUCK, MLCF, FCCL and INDU.
Courtesy – AKD Research
