The bullish momentum gained further exuberance as bulls managed to cross another barrier to surpass 48,000 with minimal resistance from bears. During the week, the index gained >1,500pts compared to the 1,156pts added in the last week. The breach of this barrier was led by blue-chip stocks from the banking sector and the energy chain. The government is actively working on options to resolve the circular debt issue in the E&P sector to fix the weakening cashflow position. Everything seems to be shaping up nicely for Pakistan, with investor confidence also boosted by the MPC decision where policy rate was maintained at 22%. Onboarding the IMF has put Pakistan’s investment case in the spotlight, leading foreign investors to pour USD 20Mn. In lieu of the above, market remained bullish with the KSE-100 closing at 48,586 (↑1,509pts or 3.2% WoW) having marked highs and lows of 49,405 & 47,077pts during the outgoing week. Outperformers during the week included HGFA, CNERGY and OGDC which increased by 23.0%, 17.9% and 17.4% WoW respectively. Traded volumes clocked-in at 291Mn shares (↑46.6% WoW) while traded value was reported at USD 50.5Mn (↑35.2% WoW).
Improved sentiment is driving bullish momentum: In the past few weeks, things have shaped up nicely, which has improved sentiments. Though major impetus came from the IMF deal, recent interest from bilaterals is a welcome sign. As such, the materialization of the Aramco-led refinery in Pakistan would be the first big-ticket investment in the country, estimated to be around USD 10Bn. To attract investment in the refinery sector, the government has formulated the Greenfield refinery policy. Now, the government is expected to discuss the policy related to Brownfield/upgradation of refineries in the Cabinet Committee on Energy (CCoE) next week. The Prime Minister has already announced that the National Assembly would be dissolved on 9th August. Today, the government is expected to discuss names with its allies to formulate a caretaker setup. After that, it would be the caretaker govt. and the Election Commission of Pakistan’s job to conduct the election within the stipulated time, which is 90 days. We are of the view that developments on the political front need to be closely monitored to gage market performance in the near term.
Major data releases during the week included: 1) Inflation for the month of Jul’23 clocked in at 28.3% YoY, higher than industry estimates of ~27%; 2) Oil sales declined 6% YoY to 1.35 Mn tons in Jul’23; 3) FBR collected PKR 538Bn (↑16.6% YoY) tax revenue against target of PKR 534Bn in Jul’23; 4) Pakistan trade deficit for the month of Jul’23 declined by 41.1%/13.7% YoY/MoM to USD 1.6Bn; 5) Cement sales soared to 3.2Mn tons in Jul’23, ↑57.4% YoY; and 6) SBP raised PKR 71Bn in the PIB auction held this week against the target amount of PKR 160Bn at cut off yield for 3/5Yr of 19.35/15.95% respectively.
Outlook: We expect the market to remain exuberant on the back of improved investor confidence. Though the IMF program is essential to keep the government disciplined and is critical for shaping macros. We firmly believe that economic discipline is fundamental for the market to carry momentum; that is why we recommend a mix of defensive and aggressive investment strategies by favoring high-yielding stocks, growth stocks, and mature companies. We continue to prefer Banks, E&P, Fertilizers, Cements, and IT.
Courtesy – BMA Capital Management Ltd.