The market commenced negatively this week, reacting to the Federal Budget announcement last Friday. Furthermore, the uncertainty over the expected policy information by SBP also fuelled the dampened sentiment. The following day the market turned positive, given that the SBP kept the policy rate unchanged, in line with the market’s expectation. However, IMF raised objections to the budgetary numbers, seeking compliance with conditions such as bridging the financing gap, which brought back the bears. In addition, Moody’s expressed reservations about Pakistan completing the IMF program by 30th Jun’23. The Pak Rupee depreciated against the greenback by PKR 0.17 (-0.10%) WoW, closing the week at 287.19/USD. Additionally, SBP-held forex reserves climbed by USD 107mn to USD 4.01bn. Overall, the market closed at 41,301 points, down by 603 (-1.4%) WoW.
Sector-wise negative contributions came from i) Fertilizer (208pts), ii) Oil & Gas Exploration Companies (163pts), iii) Commercial Banks (121pts), iv) Power (111pts) and v) Technology (60pts). Scrip-wise negative contributors were OGDC (83pts), HUBC (68pts), EFERT (68pts), ENGRO (62pts), and PPL (62pts). Whereas the sectors which contributed positively were) i) Chemicals (183pts), ii) Auto Assembler (100pts), and iii) Miscellaneous (13pts). Scrip-wise positive contributors were COLG (236pts), MTL (114pts), SHEL (47pts), PSEL (18pts), and SYS (13pts).
Foreigner selling was witnessed this week, clocking in at USD 0.71mn compared to a net buying of USD 3.63mn last week. Major selling was seen in Fertilizer (USD 0.18mn) and Commercial Banks (USD 0.15mn). Individuals reported buying (USD 4.4mn) locally, followed by Other Organizations (USD 0.6mn). Average volumes arrived at 162mn shares (down by 26% WoW), while the average value traded settled at USD 15mn (down by 31% WoW).
Other major news: i) Petroleum prices remain unchanged until the 30th, ii) OGDCL commences production from Wali Field, iii) Oil giant Shell to exit Pakistan after 75 years, and iv) Power firms to charge an additional Rs15.6bn.
Outlook and Recommendation
Market participants are closely monitoring the progress of Pakistan’s ninth review of the IMF program due to its critical implications. This review is of utmost importance as it will help manage external crises. Moreover, this will assist in raising further financing from other creditors and play a key role in improving Pakistan’s foreign exchange position. Our preferred stocks are OGDC, PPL, MARI, MCB, FABL, MEBL, BAFL, LUCK, MLCF, FCCL, ENGRO, FFC, HUMNL, HUBC, PSO, and SNGP. The KSE-100 is currently trading at a PER of 3.4x (2023) compared to the Asia Pac regional average of 11.5x while offering a dividend yield of ~12.2% versus ~3.0% provided by the region.
Courtesy- AHL Research