Pakistan Weekly Update – February 24, 2023

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The market started on a positive note this week as parliament passed the Finance Bill, aimed to change certain laws relating to taxes and duties in order to generate an additional PKR 170bn. Additionally, the current account posted a USD 3.8bn deficit in July-Jan of FY23 compared to USD 11.56bn in the same period of last fiscal year, depicting a decline of USD 7.76bn, the main reason in the decline was a reduction in imports. However the market started to deteroiate towads the end of the week as money market yields rose significantly indicating an imminent rate hike. Furthermore, the SBP reserves showcased an increase of USD 66mn to USD 3.25bn, and the Pak Rupee appreciated by PKR 2.81 | 1.07 % WoW against USD, closing the week at 259.99/USD. That said, the market closed at 40,708points, down by 411 points | -1.00% WoW.

Sector-wise negative contributions came from i) Oil & Gas Exploration Companies (269pts), ii) Commercial Banks (171pts), iii) Oil & Gas Marketing Companies (71pts), iv) Fertilizer (60pts), and iv) Chemical (35pts). Whereas, the sectors which contributed positively were i) Miscellaneous (100pts), ii) Power Generation & Distribution (89pts), and iii) Cement (71pts). Scrip-wise negative contributors were PPL (151pts), HBL (143pts), OGDC (118pts), TRG (40pts), and PSO (38pts). Meanwhile, scrip-wise positive contribution came from PSEL (109pts), HUBC (90pts), SYS (71pts), UBL (61pts) and MLCF (34).

Foreigners buying continued during this week, clocking in at USD 0.75mn compared to a net buy of USD 1.6mn last week. Major buying was witnessed in Technology & Communication (USD 1.1mn) and Other Sectors (USD 0.4mn). On the local front, selling was reported by Individuals (USD 4.6mn) followed by Insurance (USD 1.9mn). Average volumes arrived at 138mn shares (down by 10% WoW) while average value traded settled at USD 20.1mn (down by 21% WoW).

Other major news: i) i) Jul-Jan FDI dips 44pc, ii) Bestway Cement commences production at brownfield Hattar plant, iii) Fuel cost for power generation rises 59pc, iv) Government likely to increase SLR by 500 bps, and v) Oct-Dec QTA for Discos; Nepra agrees to approve Re0.5/unit hike in tariff.

Outlook and Recommendation

Market participants will be keeping a close watch on the developments regarding the IMF program. In the event of a staff-level agreement (SLA) being reached with the IMF, the equity market is likely to experience positive momentum. Our preferred stocks are OGDC, PPL, MARI, MCB, FABL, MEBL, BAFL, LUCK, MLCF, FCCL, ENGRO, FFC, HUMNL, HUBC, PSO, and SNGP. The KSE-100 is currently trading at a PER of 3.9x (2023) compared to Asia Pac regional average of 11.8x while offering a dividend yield of ~10.5% versus ~2.9% offered by the region.

Courtesy – AHL Research


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