The PSX market will continue to trade in a range, next week

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The performance of the KSE-100 index remained subdued during the outgoing week as delays in the resumption of the IMF program, the heating up of the political climate and faltering economic indicators kept investors on the back foot.

Slowdown in remittances flow and dismal LSM performance aggravated investor concerns who believe the revised GDP growth target of 2% may also not be achieved. In contrast, the slowdown in remittances could pressure the Current Account further and partially offset the benefits realized from reduced imports. On the forex side, weak reserves position and scarcity of USD in the open market have paved the way for the parallel running of unofficial channels and forex currency pilferage while hoarding and speculation increase by the day.

Differential between interbank and open market stands at around PKR 10/USD while unofficial channels are easily charging 250-260 thus dampening investor/business confidence and fuelling illicit trade. In the current economic backdrop, having the IMF on board is gaining more traction as it would not only shore up local confidence in the ailing economy but also boost flows from multilateral/bilateral sources that are yet to bear fruit. On the political front, Imran Khan led PTI have finalized plans for the dissolution of Punjab & KP provincial assemblies which we opine will only increase pressure on the incumbent government as question marks start to raise about the sustainability of the current setup. As for performance of the KSE-100, the index marked highs and lows of 41,998pts and 41,088pts respectively to settle at 41,301pts (↓397pts, 1.0% WoW). Traded volumes were reported at 73Mn (↑38.6% WoW) shares while traded value was recorded at USD 16Mn (↑19.0% WoW).

Market awaits clarity on the external front: Though the government managed to repay the much talked about USD 1Bn Sukuk maturing earlier this month on time, external concerns continue to persist. This is primarily owed to delays in the IMF program and resultantly the conditional support from other multilateral and bilateral sources. To date, the initial USD 4Bn assistance from friendly countries is yet to materialize while only 1/3rd of the flood commitments have been received. The govt. has spent north of USD 1.5Bn on flood rehabilitation and relief and the pressure is on the fiscal side as it looks increasingly likely that the initial target will be missed while the govt. seeks relaxation from the IMF for the same to get some breathing space. Restoration of IMF program is vital to restore some sort of confidence in the local bourse and as per news flow there has been some initial dialogue between the two parties though a major breakthrough is yet to be achieved. We opine this review to be tougher than the previous one as a lot on the political and economic side has changed ever since the 8th review and the sooner the govt. is able to bring IMF back into the fold, the greater clarity there will be for decisive economic actions going forward.

Major data releases during the week included: 1) Worker’s remittances declined by 9.8% YoY in 5MFY23 to USD 12.0Bn (Nov’21: USD 2.1Bn, ↓14.3% YoY); 2) LSM sector shrank by 2.9% YoY in 4MFY23; 3) T-bills auction held during the week fetched PKR 1.7Trn against a target of PKR 1.35Trn, yields increased/decreased by 10/4bps respectively for 6/12 months paper; 4) Passenger car sales declined by 39% YoY in 5MFY23 to 55k units from 90k units and 5) Private sector lending slowed down to only PKR 27Bn in 5MFY23 vs. PKR 470Bn in the SPLY.

Outlook:

We opine the market will continue to trade in a range unless there is greater clarity on the macroeconomic front while political noise will remain on the rise. That said, we advise a defensive strategy by maintaining exposure in high yielding, low leveraged and mature companies. We have a preference for Banks, E&P’s, Fertilizers, IT & IPP’s.

Courtesy – BMA Research

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