The market opened on a positive note this week, welcoming further ease in lockdown and opening up of several businesses with Standard Operating Procedures (SOPs) in place. Moreover, rising oil prices, with revival of economic activity internationally, kept the E&P scrips under limelight. Besides this, inflation for the month of May’20 also declined to 8.2%, in line with expectations while improvement in exports on a MoM basis also relieved investors. While anticipation of relief reforms in Budget 2020-21 also kept the sentiment alive. However, rapid spread of COVID-19 cases and decline in foreign reserves by USD 1.67bn being reflected in the Pak Rupee-USD parity (depreciation to 163/USD this past week) prevented the market from outperforming. The market settled at 34,350 points, gaining 419 points (up by 1.2%) WoW.
Sector-wise positive contributions came from i) Commercial Banks (401pts), ii) Oil & Gas Exploration Companies (78pts), iii) Automobile Parts & Accessories (32pts), iv) Textile Composite (25pts) and Pharmaceuticals (19pts). However, sector-wise negative contribution came from i) Fertilizer (53pts), ii) Power Generation & Distribution (30pts) and Insurance (25pts). Scrip-wise positive contributions were led by MCB (110pts), UBL (100pts), POL (66pts), HBL (66pts) and BAHL (54pts).
Foreign selling continued this week clocking-in at USD 15.3mn compared to a net sell of USD 2.4mn last week. Selling was witnessed in Commercial Banks (USD 5.0mn) and Textile Composite (USD 4.4mn). On the domestic front, major buying was reported by Companies (USD 7.4mn) and Mutual Funds (USD 6.6mn). Average Volumes settled at 157mn shares (down by 27% WoW) while average value traded clocked-in at USD 39mn (down by 27% WoW).
Other major news: i) T-bills witnesses cut in yields, ii) Import of Euro-V compliant diesel and petrol products approved, iii) Panasonic Marketing Middle East and Africa has partnered with Pak Elektron Ltd, iv) Rs200bn disbursed amongst power entities, and v) USD 9.2bn ML-1 project under CPEC planned to be executed in Jan’21.
Outlook and Recommendation
With Federal Budget announcement scheduled for 12th Jun’20, the market is expected to track budget related news flow. Whereas market performance for Jun’20 remains critical as during 11MFY20 the index has delivered a return of +0.09% in PKR terms. Our preferred stocks are OGDC, HUBC, HBL, BOP, MCB, FFC, LUCK, ENGRO, NML, ILP, KOHC, and ACPL. The KSE-100 index is currently trading at a PER of 7.2x (2020) compared to Asia Pac regional average of 12.6x and while offering DY of ~8.2% versus ~2.8% offered by the region. (AHL Research)