Super tax announcement eroded the sentiment of PSX

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Market Commentary

The market commenced on a negative note this week over uncertainty over the IMF Program, whereby the index shed 300 points DoD. However, the sentiment turned positive when a Chinese consortium of banks signed a USD 2.3bn loan facility agreement, and the ECC approved the second installment of PKR 96bn to the IPPs of the 2002 power policy. Furthermore, the finance minister announced that an IMF deal is imminent which also helped boost investor sentiment. However, during the last trading session, the government announced a 10% super tax on 13 major sectors as well as a 4% additional levy on banks, which caused the market to spiral and hit an intra-day low of 40,555pts. In other news, SBP reserves decreased by USD 748mn to USD 8.24bn which put further pressure on the PKR, which dipped to an all-time low of 211.93/USD, however the announcement of the China deal helped the PKR recover some lost ground and close at 207.48 for the week. The market closed at 41,052 points, down by 1,089 points (down by 2.58%) WoW.

Sector-wise negative contributions came from i) Banks (296pts), ii) E&Ps (194pts), iii) Cement (194pts), iv) Fertilizer (120pts) and v) Textile Composite (61pts). Whereas, sectors which contributed positively were i) Tobacco (12pts), ii) Insurance (12pts), and iii) Paper & Board (8pts). Scrip-wise negative contributors were UBL (97pts), POL (88pts), ENGRO (83pts), LUCK (79pts) and HUBC (75pts). Meanwhile, scrip-wise positive contribution came from EFUG (20pts), KEL (18pts), KAPCO (13pts), PAKT (12pts) and PKGS (8pts).

Foreign selling was witnessed this week, clocking in at USD 2.39mn compared to a net sell of USD 1.91mn last week. Major selling was witnessed in All Other Sector (USD 3.5mn) and Banks (USD 1.9mn). On the local front, buying was reported by Individual (USD 7.0mn) followed by Other Organization (USD 3.4mn). Average volumes clocked in at 301mn shares (up by 73% WoW) while average value traded settled at USD 44mn (up by 72% WoW).

Other major news: i) OGDCL discovers oil, gas reserves in Sindh, Punjab, ii) Steel bar prices raised to Rs236,000 a tonne, iii) Non-textile exports soar to $11.2bn and iv) FBR abolishes 2pc additional duty on the import of edible palm.

Outlook and Recommendation

We believe clarity should emerge next week on certain economic policies which should aid sentiments at the bourse. It seems Pakistan has met all requirements to enter into the IMF program to receive the USD 1bn tranche. Once the package comes through, other sources of FX should also open up which should relieve some pressure on our dwindling FX reserves. Chinese loan of USD 2.3bn has already been rolled over and hence, we expect the market to be positive in the coming week. Our preferred stocks are OGDC, PPL, MARI, HBL, MCB, UBL, MEBL, FABL, LUCK, MLCF, FCCL, ENGRO, FFC, HUBC, PSO, INDU and SNGP. The KSE-100 is currently trading at a PER of 4.1x (2022) compared to Asia Pac regional average of 11.8x while offering a dividend yield of ~9.6% versus ~2.7% offered by the region.

Courtesy- AHL Research

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