At the start of the week, the market experienced a downturn in response to anticipated mini-budget post-discussions between the government and the International Monetary Fund (IMF). During a session on Wednesday in Parliament, the Finance Minister presented tax measures that would generate an additional PKR 170bn in revenue for the remainder of the fiscal year. Additionally, inflationary pressures were further exacerbated by recent increases in gas and electricity prices, contributing to the overall negative market sentiment. While petrol and diesel prices were also increased by PKR 22.2/liter and PKR 17.2/liter, respectively. Despite these challenges, there were some positive developments in the market as the SBP reserves presented a jump of USD 276mn, to settle at USD 3.2bn. Additionally, the Pak Rupee appreciated by PKR 6.5 | 2.4% WoW against USD, closing the week at 262.8/USD. The market closed at 41,119, down by 623 points | -1.49% WoW.
Sector-wise negative contributions came from i) Oil & Gas Exploration Companies (238pts), ii) Technology & Communication (103pts), iii) Miscellaneous (72pts), iv) Commercial Banks (56pts), and iv) Cement (53pts). Whereas, the sectors which contributed positively were i) Power Generation & Distribution (66pts) and ii) Fertilizer (56pts). Scrip-wise negative contributors were OGDC (110pts), PPL (85pts), PSEL (69pts), TRG (64pts), and UPFL (35pts). Meanwhile, scrip-wise positive contribution came from HUBC (61pts), ENGRO (59pts), EFERT (26pts), MEBL (25pts) and RMPL (23).
Foreigners buying continued during this week, clocking in at USD 1.6mn compared to a net buy of USD 3.2mn last week. Major buying was witnessed in Exploration & Production (USD 1.04mn) and Technology and Communication (USD 0.42mn). On the local front, selling was reported by Mutual Funds (USD 6.1mn) followed by Insurance (USD 1.8mn). Average volumes arrived at 154mn shares (down 46% WoW) while average value traded settled at USD 25.4mn (down 44% WoW).
Other major news: i) Debt, liabilities surge 23.5pc to Rs63.9tr in July-Dec, ii) Car sales drop to a 31-month low in Pakistan, iii) Govt plans to quadruple coal-fired power and iv) LSM output drops 3.5pc in Dec, marking sixth monthly fall.
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. Moreover, an SLA can be leveraged to obtain funding from friendly nations and aid in the buildup of State Bank of Pakistan (SBP) reserves. Nonetheless, concerns regarding inflationary pressure arising from these measures may potentially arise in the immediate to medium term, stemming from elevated domestic fuel prices, augmented electricity and gas tariffs, as well as a potential impact on corporate profitability due to high input costs. Our preferred stocks are OGDC, PPL, MARI, MCB, FABL, MEBL, BAFL, LUCK, MLCF, FCCL, ENGRO, FFC, HUBC, PSO, and SNGP. The KSE-100 is currently trading at a PER of 3.9x (2023) compared to Asia Pac regional average of 12.9x while offering a dividend yield of ~10.5% versus ~2.9% offered by the region.
Courtesy- AHL Research