In Jul’23, PSX demonstrated exceptional performance, characterized by various positive developments. At the onset of the month, the government secured a significant Stand-by Arrangement (SBA) facility of USD 3bn from the IMF, of which USD 1.2bn was promptly disbursed. This pivotal IMF deal led to an upgrade in Pakistan’s sovereign rating by Fitch from CCC- to CCC. Following IMF support, the SBP received significant inflows/rollovers from allied nations, boosting the country’s forex reserves level to USD 8.2bn by month-end. In addition, Pakistan attained a fourth consecutive monthly Current Account Surplus of USD 334mn in Jun’23. Furthermore, a notable MoU was signed between five Pakistani state-owned enterprises and Saudi Arabia, paving the way for a substantial USD 10bn refinery project to be executed within Pakistan. As a result of these positive developments and the optimistic expectation of resolving circular debt, market sentiment soared, leading the local bourse to surge past 48,000 points – a level not witnessed since 23rd Aug’21. Remarkably, the KSE-100 index displayed remarkable growth, closing at 48,035 points, representing a substantial increase of 6,582 points or 15.9% on an MoM basis (the highest monthly return since Apr 20). In addition to this, PSX witnessed a foreign buy of USD 18.2mn, the highest monthly net inflow since Jul’19.
Major News
FY23 petroleum products’ sales slump 27pc YoY, Fertilizer offtake declines by 4.8% YoY in June’23, Rs1.25/unit raise in Discos’ tariffs allowed, Cement sales decline 22.80pc in June ’23, OGDC’s Jhal Magsi Gas project revived, Nepra okays Rs1.25 hike in power tariff, Govt to establish SPV for long-term imports of discounted Russia oil, 216k tonnes of sugar exported in FY23, Textile group exports decline 15pc to $16.501bn YoY, Discos to charge Rs1.9039 per unit more in July bills, Engro completes Rs11.6bn share buyback exercise, Sitara Peroxide extends plant shutdown for another two weeks, Vitol wins PARCO contract to sell fuel oil abroad, Private sector borrowings plunge 87pc, Coal tariffs of Thar Block-I, -II approved, Cabinet panel okays cargo terminal deal with UAE, MPCL drills second horizontal well in Mari Gas Field, and Ecnec okays Rs1.2 trillion development projects.
Outlook and Recommendation
The incumbent government is expected to dissolve assemblies early this month, after which a caretaker government will take charge until General Elections are held and results are announced. Additionally, the market participants will closely monitor further developments related to the SIFC based investments, which will keep the momentum in listed SOEs ongoing.
In addition to this, inflation is expected to clock-in at 26.4% during Jul’23 against 24.9% YoY recorded in the same period last year and a decline from 29.4% MoM registered in the previous month. Looking forward, the inflation trajectory is expected to remain downward, however, main risks to overall inflation are expected to be driven by high food and energy prices (gas tariff hike yet to be announced), potential impacts of budgetary measures, and the vulnerability of a weaker currency.
Furthermore, the ongoing result season (4QFY23/2QCY23) is expected to witness the announcement of robust earnings, which will keep certain scrips in the limelight.
The KSE-100 is currently trading at a PER of 3.9x (2024) as compared to its 5-year average of 5.8x offering a dividend yield of ~10.2% as compared to its 5-year average of ~6.7%. Our preferred stocks are OGDC, PPL, MARI, MCB, UBL, MEBL, LUCK, MLCF, ENGRO, FFC, HUBC, and INDU.
Courtesy- AHL Research