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Profit-taking spoilsport; monetary, lockdown ease and budget news may favour market

After posting a spectacular performance in the previous week (up 3.98%WoW), the market lost some of its momentum on profit-taking. The benchmark closed the week ended on 8th May 2020 at 33,268 points, down 2.47%WoW. Top gainers of the week were: SHEL, YOUW, IDYM and HMM, whereas laggards included: KTML, CHCC and SERT. Average daily traded volume for the week improved only slightly more than 190 million shares as Ramadan factor persisted. Volume leaders being: HASCOL, UNITY, MLCF and TRG.

The total liquid foreign reserves held by Pakistan were reported at US$18,755.1 million on 30th April 2020. The break-up of the foreign reserves were: Reserves held by State Bank of Pakistan (SBP) were reported at US$12,329.4 million and reserves held by commercial banks at US$6,425.7 million. During the week under review, reserves held by SBP increased by US$259 million to US$ 12,329.4 million.

During the week included cement data pertaining to April 2020 indicated local dispatches declined by 19%YoY, but managed to inch up 1.7%MoM, as against this and exports plunged by 54%YoY to US$957 million during the month due to order deferrals and cancellation in face of COVID-19. The other major news flow impacting the market during the week included: 1) Pakistan’s fiscal deficit declined to 3.8% of GDP in 9MFY20, as against 5% of GDP during the same period last year, 2) OGRA slashed prices of all petroleum product prices, 3) inflation for April 2020 was reported at 8.5%, providing space for further cut in interest rates, 4) Governor, SBP provided details of the impact of lockdown on GDP growth, 5) textile value chain allowed to resume operations in Punjab, 6) GoP committed to bear 40% of first loss to banks on SME loans, and 7) IPP inquiry commission put on ice for two months.

With the result season not far from over, market is likely to shift attention towards monetary policy statement, where a low inflation for April 2020 offers room for further monetary easing. Furthermore, market will continue to factor in phased easing of lockdown. Meanwhile, any news flow regarding Federal Budget FY21 may also drive the market.

Local cement dispatches for April 2020 declined by 19%YoY due to lockdown restrictions, but increased slightly by 1.7%MoM as restrictions were eased for the sector. For 10MFY20, local demand has posted meager growth of 1.2%YoY. Exports from North took a significant hit, declining by 99YoY as border controls were imposed due to COVID-19 outbreak, while South’s exports were dented by restrictions in place at export destinations. After a horrid 3QFY20, local players increased prices by Rs30/bag. However, authorities have asked for an explanation for the price hike (policy of scrutinizing pricing across industries/goods) prompting some players to take back the announcement. Analysts maintain liking for LUCK, DGKC and MLCF.


April 2020 volumetric offtake of oil marketing companies (OMCs) was reported at 1.1 million tons, with HSD leading increase (up 42%MoM), while curtailed FO continued the decline (down 75%YoY) and MS declined by 36YoY. For 10MFY20, sales volume of 13.3 million tons, down 13%YoY exhausted by weak demand from power sector (cumulative FO sales dipped 31%YoY). Monthly average sales dropped to 167,000 tons as against 243,000 tons during 10MFY19. In terms of market shares, PSO/APL/HASCOL account for market shares of 36/9/8% during April 2020 where a comparison with April 2019 reveals decreasing share of APL/PSO, while HASCOL registered increase in market share. Fluctuating international crude prices and ongoing lockdown is going to drive volumes, where any easing would further prop up HSD demand. However, restrictions on individual movement will continue to hamper MS offtake. APL emerges as preferred long term play as the Company continues to maintain a stable market share, protected from adverse effects on its balance sheet. On the other hand, PSO can turn out to be a high beta play in near term, particularly with the expectations of further monetary easing. Issue of Sukuk-II can also benefit the OMC.

Effectively building sentiment buffers to counter negativity from COVID-19, equity markets welcomed major reforms and policy actions undertaken (construction package, surprise rate cut, concessionary financing) pushing the KSE-100 index up 16.7%MoM, its highest monthly move up since March 2009 and arresting two consecutive months of declines. Market liquidity tapered, with KSE-100/All average traded volumes receding 9.9/6.9%MoM (expected impact of reduced trading hours). The value traded during the month slipped 13%MoM to US$48.8 million as investors favored main-board scrips. FPI outflows continued to grow (in line with continued global EM sell-off), with February 2020 recording net sell of US$68.9 million (taking CYTD outflows to US$207.2 million), where Mutual Funds (US$59.0mn), Insurance (US$19.4mn) and Companies (US$12.4mn) were net buyers. In terms of sectoral focus, FPI outflows were dominated by Banks (US$21mn), E&Ps (US$20mn) and Cement (US$14mn). Sectoral moves were tethered to relief policies, with construction linked Cements (up 55%MoM), Steel (up 49%MoM) posting major recoveries, while main-board OMCs (up 31%MoM), E&Ps (up 30%MoM) fared better on OPEC+ consensus over crude output, while Banks(up 11%MoM) benefitted from SBP concessions on booking bad debts Analysts reiterate their stance on headline risk prevailing albeit at a slower clip, as seasonal slowdown from Ramadan relaxes risks, while investors pivot to reforms included in the upcoming budget. They also advocate for a sell on strength, buy on dips approach in the immediate run while their preferred sectors include leveraged consumer plays (PAEL), Fertilizers (ENGRO) and OMCs (on circular debt/FX payment (PSO).

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