This week trading commenced on a negative note due to profit taking which resulted in selling pressure in Cement, Steel, Automobile, and E&P sector. On Tuesday however, a rebound was witnessed at the index attributable to increase in international oil prices and prospects of consensus between Independent Power Producers and the Government of Pakistan. On the other hand, increase in fertilizer prices also increased activity in the fertilizer sector. However, honorable Supreme Court of Pakistan announced its reserved verdict on GIDC today whereby industries are required to pay PKR 457bn which once again brought pressure on industries (Fertilizer, Cement, Steel, Chemicals and Textiles). With that said, the KSE-100 index closed at 40,291pts, up by 261pts or 0.65% WoW (eighth consecutive positive week after Jan’17).
Contribution to the upside was led by i) Power Generation and Distribution (261pts), ii) Oil and Gas Exploration Companies (97pts), iii) Oil and Gas Marketing Companies (92pts), iv) Commercial Banks (86pts), and v) Textile Composite (29pts). Scrip wise major gainers were HUBC (213pts), PPL (56pts), UBL (56pts), KAPCO (39pts), and SNGP (36pts). Whereas, scrip wise major losers were DAWH (55pts), ENGRO (49pts) MCB (31pts), EFERT (25pts) and FFC (23pts).
Foreign buying continued this week clocking-in at USD 8.7mn compared to a net buy of USD 3.7mn last week. Buying was witnessed in Cement (USD 4.3mn) and Fertilizer (USD 2.7mn). On the domestic front, major selling was reported by Banks/DFI (USD 10.7mn) and Insurance Companies (USD 5.4mn). That said, average daily volumes and traded value for the outgoing week were down by 9% and 14% to 581mn shares and USD 125mn, respectively.
Other major news: i) Moody’s reaffirms Pakistan’s ‘stable outlook’, ii) KE closes Rs25bln fund raising via sukuk, iii) SC to announce its reserved judgment on GIDC tomorrow, iv) Car sales decline in July, v) ‘ LSM shrinks 10.2 percent in FY2020, and vi) PTI govt restricts budget deficit to Rs3.4tr.
Outlook and Recommendation
Going forward, we expect the market to remain green especially cyclical sectors including Cement, Steel, Textile and Automobile amid notable improvement in macros including quick recovery in exports, reduction in trade deficit, stable PKR, drastic increase in industrial outputs (majority companies operating at maximum capacity) and lower inflation expectation. Our preferred stocks are OGDC, HUBC, HBL, AKBL, MCB, BAFL, LUCK, KOHC, ACPL, ENGRO, INDU, NML, and AVN. The KSE-100 is currently trading at a PER of 7.3x (2021) compared to Asia Pac regional average of 13.7x while offering a dividend yield of ~6.2% versus ~2.6% offered by the region. (AHL).