This week, the market opened on a negative note amid concerns over the dissatisfaction expressed by IMF upon measures taken in Federal Budget 2022-23, whereby the market plunged by 1,135points DoD. After the bloodbath, the market sentiment turned positive amid the expectation of the exclusion of Pakistan from FATF’s grey list.
Moreover, the investors remained elated owed to the news flow regarding China agreeing to roll over loans worth USD 2.3bn to Pakistan and extending further assistance by USD 2.5bn to USD 2.8bn. Furthermore, the government increased the prices of MS and HSD by PKR 24.03/ltr and PKR 59.16/ltr, respectively, while completely eliminating the remaining subsidies, fulfilling one of the major conditions of IMF. However, the PKR continued to plummet throughout the week against the USD, closing at PKR 208 (lowest level ever) while SBP reserves dropped to a staggering USD 8.99bn. The market closed at 42,141 points, up by 126 points (up by 0.3%) WoW.
Sector-wise positive contributions came from i) E&P (116pts), ii) Cement (90pts), iii) OMC (80pts), iv) Power Generation (56pts), and v) Engineering (51pts). Whereas, sectors which contributed negatively were i) Commercial Banks (263pts), ii) Chemical (34pts) and iii) Technology (33pts). Scrip-wise positive contributors were HUBC (51pts), PSO (50pts), POL (36pts), PPL (32pts) and OGDC (31pts). Meanwhile, scrip-wise negative contribution came from UBL (75pts), MEBL (71pts), BAHL (46pts), MCB (44pts) and SCBPL (34pts).
Foreign selling was witnessed this week, clocking in at USD 1.91mn compared to a net sell of USD 0.42mn last week. Major selling was witnessed in Banks (USD 1.4mn) and Fertilizer (USD 1.1mn). On the local front, buying was reported by companies (USD 10.5mn) followed by individuals (USD 5.8mn). Average volumes clocked in at 174mn shares (up 3% WoW) while average value traded settled at USD 25mn (up 16% WoW).
Other major news: i) Nepra okays Rs1.55/unit hike for Discos, ii) Textile exports surge by 28.6% in July/May, iii) OGDCL discovers gas in Sindh and iv) Jul-Apr period: Banks disburse over Rs1trn agri credit.
Outlook and Recommendation
Pakistan has fulfilled all the requirements to enter into the IMF program (elimination of petroleum subsidies, hike in electricity tariff and budgetary measures) and the government is opting to further expand revenue measures, with which agreement with IMF for the loan tranche of USD 1bn is expected to materialize. Hence, we expect the market to be positive in the coming week. However, continuous Pak Rupee depreciation against greenback will raise concerns over inflation. Our preferred stocks are OGDC, PPL, MARI, HBL, MCB, UBL, MEBL, FABL, LUCK, MLCF, FCCL, ENGRO, FFC, HUBC, PSO, INDU and SNGP. The KSE-100 is currently trading at a PER of 4.2x (2022) compared to Asia Pac regional average of 11.8x while offering a dividend yield of ~9.4% versus ~2.8% offered by the region.
Courtesy- AHL Research