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Index moves strongly; upcoming mps, budget in the limelight

Carrying the momentum from last week, the market started the week ended on 28th May 2021 on an exuberant note on the back of strong economic growth data and the news related to populous budget proposals. The market remained in the green, gaining 1,211 points. Benchmark index closed at 47,126 levels, up 2.64%WoW. The market witnessed a surge in trading volumes as highest intraday volumes were witnessed on Thursday with an exchange of 2,220 million shares (up by 42%) over the previous day highest intra-day volume. Apart from this, the weekly trading volume also hit the all-time high of 6,187 million shares with average daily turnover soared to 1,237.5 million shares (up 103%WoW) on the onset of improved macro-economic fundamentals and considerable decline in coivd-19 positivity rate which reinvigorated the market sentiment.

Key news driving the market sentiment and high volumes: 1) expectations of GDP growth to exceed 3.94% in the current financial year, 2) Current Account surplus of US$773 million in July-April on account of upsurge in remittances and a healthy recovery in exports, 3) growth in urea sales by 35% in 4MCY21, 4) Tarin-led meeting discussed concessional power tariff for export oriented sector, 5) SBP’s reserves rising by US$88 million, and 6) textile exports up by 230%YoY in April 2021.

Flow wise, Foreigners remained net buyers during the week (net buy of US$2.1 million) together with Broker Proprietary Trading (net buy of US$10.8 million) and other organization (net buy of US$7.9 million). Top volume leaders for the week were: WTL, HUMNL, and SILK. Top performers for the week included SYS, NML, PSX, UNITY, and BAHL; whereas laggards were: STJT, PAKT, AICL, EPCL, and GHCL.

With the announcement of Monetary Policy Committee to maintain status quo, IMF review meeting scheduled to be held next month and positive news flows concerning FY22 budget, analysts expect the market to carry the same momentum in coming week. Inflation for May 2021 is likely to clock in at 11.6%YoY compared to 11.1%YoY in the previous month. On a sequential basis, inflationary curve is likely to flatten with 0.8%MoM. Analysts continue to advocate for stocks that fall on structural theme including Cements, Steel and Construction-allied, Power and select OMCs (PSO).

AKD Securities organized Pakistan Long Steel Conference (PLSC) where leading listed long steel players namely Amreli Steels (ASTL), Mughal Iron & Steel Industries (MUGHAL), Agha Steel Industries (AGHA) and Ittefaq Iron Industries (ITTEFAQ) shed light on the future outlook of the sector. Industry players expect the overall demand growth to be in the range of 6-10% for FY22 backed by strong construction sector package coupled with contribution from increased urbanization. Industry players expect Naya Pakistan Housing Scheme to generate 4-5 million tons demand over next 2-3 years (given the project reaches 50% of its completion). Commenting on the pricing dynamics, FY21 price differential between imported scrap and local rebar prices is at its 5-year low of US$260-290/ton as against historic average of US$360-380/ton. Hence, there is still room for rebar prices to go up by Rs8,000/ton.

AKD maintains overweight stance on the sector as economic rebound is expected to induce demand where additional impetus is expected to be provided by continuous government support in the shape of various incentives to construction sector.

As per the numbers released by NFDC, urea offtake declined 10%MoM, but were up 28%YoY to 309,000 tons. The sequential decline in numbers was witnessed industry wide due to seasonality factor, except for EFERT which witnessed 17/178% MoM/YoY uptick, due to a low base effect in the same period previous year. The overall urea inventory declined 38%YoY to 530,000, from 854,000 in April 2020, due to staggered decline in urea price after GIDC elimination last year. The GoP’s decision to supply LNG to hitherto closed fertilizer plants for 10 months may continue to improve inventory levels and reduce upside pressure on urea price. DAP offtake on the other hand declined 68/70% MoM/YoY to 45,000 tons, taking 4MCY21 DAP offtakes to 359,000 flattish YoY, with FFC leading the show. DAP inventory at April 2021 end stood at 132,000 tons, down 68%YoY due to supply constraints in global markets. With phosphoric acid prices on a rise (up 45% CYTD), FFBL will continue to pass -on the impact to end consumers to preserve gross margins. Analysts continue to like FFC from the fertilizer space due to healthy EBITDA generation and D/Y of 11.5% on offer. Continued bullish trend in DAP prices in 2HCY21 may warrant us to revisit the values.

As per the data released by PBS, textile exports for the month of April 2021 registered a growth of 231%YoY to stand at US$1.34 billion showing signs of sales picking up with the arrival of spring season. Segment–wise value and non-value added exports showed a steep rise in performance with 245%YoY and 186%YoY respectively. The increase in non-value added segment occurred due to both yarn/cotton cloth exports up 165%/200%YoY as local manufacturers look to intensify efforts in capturing US textile imports from China after order cancellation from Xinjiang due to human rights violation. International cotton prices have corrected recently, down 1.04%MoM CYTD/FYTD increase stands at 5.1/29.2%. The recent downtick in prices is attributable to partial correction in international markets. Textile sector has turned out of favor in recent months, following rupee appreciation. However, analysts expect earnings to remain robust in the near term as older cotton inventories benefits local manufacturers in streaming through the recent bull cycle in commodities, translating into higher margins.

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