PSX: Outlook and recommendation

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The market started on a positive note this week in anticipation of Pakistan and the IMF reaching a Staff Level Agreement (SLA), in particular, energy stocks propelled the market to hope that the circular debt issue gets cleared. Moreover, the Pak Rupee appreciated by PKR 7.3 | 2.7% WoW against USD, closing the week at 269.3 However, on Thursday talks concluded and the IMF left Pakistan without reaching an agreement, which caused the market to spiral in the last trading session.

The Sensitive Price Indicator (SPI) for the week recorded an increase of 2.82% due to an increase in the prices of food items. Furthermore, the SBP reserves showcased a reduction of USD 170mn, to settle at USD 2.9bn. That said, the market closed at 41,742 points, up by 1,271 points | 3.14% WoW.

Sector-wise positive contributions came from i) Oil & Gas Exploration Companies (459pts), ii) Technology & Communication (260pts), iii) Commercial Banks (252pts), iv) Cement (78pts), and iv) Pharmaceuticals (70pts). Whereas, the sectors which contributed negatively were i) Power Generation & Distribution (71pts) and ii) Sugar & Allied Industries (3pts). Scrip-wise positive contributors were OGDC (259pts), SYS (152pts), HBL (103pts), TRG (99pts), and PPL (97pts). Meanwhile, scrip-wise negative contribution came from HUBC (75pts), ENGRO (51pts), UPFL (12pts), EFUG (11pts), and JVDC (6).

Foreigners buying continued during this week, clocking in at USD 3.2mn compared to a net buy of USD 0.9mn last week. Major buying was witnessed in Exploration & Production (USD 4.8mn) and Commercial Banks (USD 2.6mn). On the local front, selling was reported by Insurance Companies (USD 6.5mn) followed by Mutual Funds (USD 5.2mn). Average volumes arrived at 284mn shares (up 111% WoW) while the average value traded settled at USD 44.4mn (up 94% WoW).

Other major news: i) Two RLNG-based power plants: Govt considers selling own 30pc equity, ii) ‘Italian, Chinese show interest for JVs in footwear industry’, iii) Thar coal-based power plant: COD achieved, iv) Islamic NPC rates revised upward, and v) Reason behind cut in PSDP disbursement identified.

Outlook and Recommendation

A key event in the immediate term is the resumption of the IMF program. The Government is expected to review key demands of the IMF over the weekend. Any positive outcome on that front is likely to bring back bulls to the market. Our preferred stocks are OGDC, PPL, MARI, MCB, FABL, MEBL, BAFL, LUCK, MLCF, FCCL, ENGRO, FFC, HUBC, PSO, HUMNL, and SNGP. The KSE-100 is currently trading at a PER of 4.0x (2023) compared to Asia Pac regional average of 13.0x while offering a dividend yield of ~10.2% versus ~2.9% offered by the region.

Courtesy- AHL Research

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