The index lost momentum gained over the last two weeks and once again closed below the 42k mark. Despite the SBP maintaining policy rate at 15% in the MPC meeting held this week, it failed to spur price action as status quo was largely expected. Furthermore, the regulator revised up its annual forecast for inflation and secondly trimmed its GDP growth expectations to only 2% in the wake of floods, thus raising some investor concerns. Apart from that, political noise continued to play on market sentiment as by-polls in seven constituencies approached (to be held on Oct 16th). On the other hand, PKR’s winning streak against the USD also came to an end after 13 consecutive sessions which signalled that the local currency might be settling around the 220 mark for now which is also what the REER suggests, in our view. It is also worth highlighting that the new Finance Minister and the Governor, SBP are currently on a tour to the USA where they have met top officials from the World Bank and the IMF who have ensured Pakistan of budgetary/economic support following the disruption caused by floods. That said, the SBP earlier highlighted that they expect cumulative receipts of USD 4Bn from the ADB, World Bank, UN & AIIB with flows of USD 1.5Bn from the ADB to materialize by the end of the end which would give much needed respite to forex reserves held by the Central Bank that have declined to less than 6 weeks of import cover. One thing pertinent to note in the briefing following the MPC was the fact the State Bank has made foreign principal/interest payments exceeding USD 4Bn in 1QFY23 and were adamant that the country will not fall short of meeting its short term commitments as they fall due. Reverting to index performance, the market recorded highs and lows of 42,442pts and 41,896pts during the week respectively to close at 41,949pts (↓137pts/0.3% WoW). As for traded volumes, they were recorded at 116Mn shares (↓8.0% WoW) while traded value was recorded at USD 35Mn (↓9.5% WoW).

SBP/Finance ministry continue to play down default concerns: In its post MPC briefing held earlier this week, the SBP Governor reiterated that the country has enough funds to finance its short term maturing debt while stating that the central bank has available funding of USD 37Bn against external funding requirement of USD 31Bn. Taking a step further from this claim, the Finance Minister stated that they will not be seeking rollover of debt maturing this year from the Paris Club which as per news reports stands at ~USD 1.2Bn and are also evaluating funding from non-Paris Club multilateral/bilateral sources. Currently, the SBP Governor and the Finance Minister are in the US where they have had discussions with top officials from the IMF & the World Bank and have been assured of continued budgetary support. Furthermore, IMF review for the release of next tranche is set to start from next week and it will be interesting to see how the new FM steers through the current economic crisis while having the IMF on his side. In the current economic backdrop, we reiterate that continuation of the IMF program and adherence to the structural reforms put forward by the global lender will be fundamental in overcoming the economic challenges faced by the country.

Major data releases during the week included: 1) PIB yields for 3/5 year govt. paper declined by 8/30bps to 13.84/13.09% respectively as the SBP maintained policy rate at 15%; 2) Sales of passenger cars declined by 50% YoY to ~29k units in 1QFY23; 3) Remittances for Sep’22 receded 10.5% MoM to USD 2.4Bn (1Q: USD 7.7Bn, ↓6% YoY) and 4) Cement dispatches for Sep’22 dipped by 6.8% YoY to 4.3Mn tons (1Q: 9.6Mn tons, ↓25% YoY).

Outlook: We opine upcoming IMF review will need to be closely followed and shall have a knock on impact on market performance alongside the materialization of flows from other multilateral/bilateral sources however, highlight that political noise poses a potent threat to investor sentiment and market participation. We recommend exposure in E&P’s, Banks, IT, Fertilizers & Cements.

Courtesy – BMA Capital Management Ltd.