PSX market review for the week

The index remained range bound during the week as optimism regarding the start of the IMF’s 9th review lost steam amid weakening economic indicators alongside worsening security situation. Tough economic decisions needed as part of the resumption of the IMF program kept investors wary and participation low. To recall, IMF has demanded an increase in base power tariff by PKR 12.5/kwh and gas tariff by up to 80% alongside scrapping of direct subsidies. There are concerns that steep PKR devaluation along with possible upward revision in energy tariffs will push inflation to new highs. It is pertinent to mention that we have already witnessed 48-year high inflation reading in Jan’23 at 27.6% YoY. On the political front, PM Shehbaz Sharif has called an All Parties Conference next week amid new wave of terror and economic challenges faced by the country. IMF has also demanded political consensus while KSA has linked its multi-billion dollar investment plan to political stability as well. PKR struggled against the greenback throughout the week losing 5.1% WoW to 276.6. Going forward, we expect economic pressures and political instability to remain in the limelight and index movement to remain limited. As for the index performance, the KSE-100 marked highs and lows of 40,987pts and 39,842pts respectively to settle at 40,471pts (↑21pts, 0.1% WoW). Traded volumes clocked-in at 77Mn shares (↓39.4% WoW) while traded value was reported at USD 18.8Mn (↓32% WoW).

Restoring IMF program to come at a significant cost: Last week we saw the PKR lose over 14% WoW against the USD and the same bearish spell continued this week as well with the loss of a further ~5% to close the week at 276.6. However, as per sources this devaluation has increased inflow from ex-pats and exporters have also started to bring precious forex back to the market. With the PKR adjustment now done, we expect government to move on to raising energy tariffs to fulfil second demand of IMF in order to reduce circular debt. Furthermore, floating the mini budget is also on the cards with an outlay of PKR 300Bn to bridge the fiscal shortfall. Lastly, we believe successful completion of the ongoing review is critical and will pave the way for much needed inflows from multilateral/bilateral sources that would shore up dwindling reserves and improve import cover which currently stands at less than 20 days.

Major data releases during the week included: 1) Foreign reserves held by the country declined by USD 711Mn WoW to only USD 8.7Bn on the back of external repayments; 2) Pakistan’s trade deficit narrowed by 32.0% YoY to USD 19.6Bn during 7MFY23; 3) Pakistan’s headline inflation clocked in at 27.6% YoY in Jan’23 primarily led by food inflation (↑42.9% YoY); 4) Petroleum sales in Pakistan shrank 19% YoY in 7MFY23 on the back of slowdown in economic activities and higher fuel prices & 5) FBR collected PKR 537Bn in Jan’23 (↑23% YoY) against the monthly budgetary target of PKR 533Bn.

Outlook: In the current macroeconomic and political backdrop, we advise maintaining a defensive investment strategy while closely monitoring macroeconomic developments particularly the ongoing talks with IMF, energy tariff adjustments and the likely announcement of a mini-budget. We continue to prefer Banks, E&P’s, Fertilizers, IT & IPP’s.

Courtesy- BMA Capital Management Ltd.

Posted in PSX.

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