Despite PM Imran Khan successfully winning a vote of confidence in the National Assembly, the domestic bourse witnessed a severe hammering throughout the week against expectations. Concerns persisted with regards to uncertainty over the senate chairman election. The opposition’s plans regarding “Long March” towards the end of March contributed further to the prevailing political noise. Furthermore, Election Commission of Pakistan rejected a plea of the Government to stop the issuance of the notification for the opposition candidate’s victory in the senate elections. Once again this was seen by the investors as a source of further instability on the political front. Besides politics, concerns over rising inflation (low-base effect), creeping up oil prices, news regarding possible withdrawal of corporate tax exemptions and resurgence in COVID-19 cases, further dented the sentiment. Meanwhile, on the last working day, investors’ expectation of the Government candidate retaining his position as Chairman Senate helped to revive sentiments. The market settled at 43,788 points, shedding 2,049 points (down by 4.5%) WoW. This week was the worst week in terms of points as well as percentage over the last almost one year (week ending 27th March 2020 saw a decline of 2,558 points/8.34% WoW).
Sector-wise negative contributions came from i) Technology & Communication (353pts), ii) Cement (304pts), iii) Fertilizer (224pts), iv) Oil & Gas Exploration (169pts) and v) Pharmaceuticals (143pts). Whereas sectors that contributed positively include i) Insurance (22pts) and ii) Tobacco (2pts). Scrip-wise negative contributors were TRG (278pts), LUCK (135pts), ENGRO (107pts), PPL (68pts) and SYS (67pts) while positive contributors included AICL (25pts), BAHL (21pts) and MCB (11pts).
Foreign buying this week clocking-in at USD 3.6mn compared to a net sell of USD 10.7mn last week. Buying was witnessed in Commercial Banks (USD 2.3mn) and Food and Personal Care Products (USD 0.4mn). On the domestic front, major selling was reported by Mutual Funds (USD 9.1mn) and Insurance Companies (USD 5.6mn). Average volumes arrived at 433mn shares (up by 12% WoW) while average value traded settled at USD 138mn (up by 7% WoW).
Other major news: i) Lucky Cement’s Iraq facility starts production, ii) GGL announces manufacturing of sophisticated technology, iii) Adamjee Life plans IPO, and iv) Banks directed to digitise payment, financial services.
Outlook and Recommendation
With the government’s candidate successfully retaining his position as Chairman Senate, we view this as a major political sigh of relief for the ruling government. We expect this to stimulate renewed confidence and stability in the political climate, which should help recover sentiment in the local bourse. We do highlight that rising COVID cases, and rising oil prices are factors that could keep market performance in check. Our top picks are HBL, MCB, UBL, OGDC, MARI, KAPCO, HUBC, FFC, LUCK, ENGRO, NML, ILP, and PSO. The KSE-100 index is currently trading at a PER of 6.7x (2021) compared to Asia Pac regional average of 17.4x and while offering DY of ~7.1% versus ~4.5% offered by the region.
Courtesy – AHL Research