This week marked FY22’s worst performing week to date (second on CY basis), the equity bourse closed at 45,074points (down by 3.4% / 1,563pts WoW). Amid rising demand and the upcycle in international commodities exacerbating the deficit on the external front, raising red flags over future CPI readings and building pressure on the Pak Rupee, the SBP commenced tapering its monetary stimulus. A 25bps hike in the policy rate, shifting the focus from prioritizing growth to now ensuring sustainability, was put into effect to stop the economy from overheating. While the government also adopted other measures to curtail demand such as tightening regulatory and consumer financing policies for auto consumers. Hence, investors remained on the edge.

Sector-wise negative contributions came from i) Technology (275pts), ii) Cement (196pts), iii) Commercial banks (148pts), iv) Fertilizer (137pts), and v) E&P (134pts). Whereas, sectors which contributed positively were i) Miscellaneous (41pts), and ii) Chemical (3pts). Scrip-wise negative contributors were TRG (142pts), SYS (124pts), HBL (71pts), OGDC (70pts) and PPL (55pts). Meanwhile, scrip-wise positive contribution came fr om PSEL (46pts), MCB (18pts) and BAFL (15pts).

Foreign buying was witnessed this week, settling at USD 6.7mn compared to a net sell of USD 10.9mn last week. Major buying was witnessed in Other Sectors (USD 6.1mn), Technology and Communication (USD 3.0mn) and Oil and Gas Marketing Companies (USD 1.8mn). On the local front, selling was reported by Individuals (USD 7.5mn) followed by Companies (USD 3.5mn). Average volumes clocked-in at 384mn shares (down by 4% WoW) while average value traded settled at USD 73mn (down by 18% WoW).

Other major news: i) EU extends GSP plus status with six new Conventions, ii) ADB says Pakistan’s economy to grow at 4% in FY22, iii) Pakistan ready to issue new international Sukuk as soon as Oct, iv) Punjab issues 22 NOCs for setting up cement factories, and v) Govt proposes up to 37pc hike in gas tariff.

Outlook and Recommendation

With the government making all efforts to restrict imports, tax collection (silver lining in the domestic economic climate at the moment), may also be hurt. Whereas sentiment of the market may once again be tested with the government proposing a hike in gas / electricity tariffs. However, resumption of the IMF program next month could provide a breather.

Our preferred stocks are EPCL, PSO, OGDC, HUBC, HBL, AGHA, UBL, MCB, LUCK, FFC, ENGRO, INDU, PTL, SNGP, UNITY, HTL, and ILP. The KSE-100 is currently trading at a PER of 5.3x (2021) compared to Asia Pac regional average of 14.4x while offering a dividend yield of ~8.1% versus ~2.3% offered by the region.

Courtesy – AHL Research

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AHL Research