Pakistan Stock Exchange benchmark index witnesses 2.5%WoW decline
Pakistan Stock Exchange (PSX) remained under pressure during the week ended on September 23, 2022, driven by renewed weakness in the PKR against the USD and concerns regarding the country’s fiscal health.
Participation in the market remained lackluster, with average daily traded volumes averaging 166.1 million shares during the week under review as compared to 183.2 million shares a week ago.
The benchmark index, KSE-100 Index lost 1,059.28 points during the week, depicting a 2.5%WoW decline. The PKR continued to lose value against the US$, depreciating 1.2% during the week.
Furthermore, the SBP conducted the T-Bill auction this week, where the central bank raised PKR1.3 trillion against a target of PKR1.5 trillion. The cut-off yields for the 3-month and 12-month tenors remained largely flat, whereas the yield for 6-month increased by 15bps to 16%.
Other major news inflows during the week were: Saudi Fund for Development confirmed a one-year extension of US$3 billion deposit, 2) Initial estimates pointed towards flood losses to be US$30 billion, 3) IMF announced that it would support Pakistan’s flood relief, reconstruction efforts under the current program, 4) Russia agreed to provide petrol to Pakistan on deferred payments, 5) In July 2022, LSMI output was down by 16.5%MoM, 6) SPI was down by 8.11%WoW, and 7) CAD dropped 42%MoM to US$703 million in August 2022.
The top performing sectors were: Tobacco, and Synthetic & Rayon, while the least favorite were: Close-End Mutual Fund and Oil & Gas Exploration Companies.
Top performing stocks were: PAKT, IBFL, UNITY, TRG and NESTLE, while laggards were: TGL, HGFA, CEPB, KEL and PPL.
Foreign investors emerged the major buyers with net buy of US$5.1 million, followed by Individuals (US$1.5 million). As against this, Insurance Companies were the biggest sellers with US$3.3 million, followed by Mutual Funds (US$2.4 million).
Going forward, the easing off in international commodity prices, particularly oil is expected to be a welcomed development as the pressures on the external account start to recede.
On the flip side, the strength in the US$ following the 75bps policy rate increase in the US is expected to put pressure on the exchange rate, which could murk sentiment.
Investors will be looking towards any policy action in the upcoming Monetary Policy, scheduled for October 10, 2022.
However, the economic slowdown—an intended outcome of the SBP’s contractionary policies—and effects of floods across the country could adversely affect sentiment going forward. Investors are to stay cautious, while building new positions in the market.
Energy Purchase Data for the month of August 2022 shows that power generation in the country remained flat at 14,053GWh. However, there was a decrease by 13%YoY from the 16,078GWh recorded in August 2021.
The significant increases in power generation have been seen from the plants being run by Coal and furnace oil, with generation up 20%MoM and 16%MoM.
Generation from Gas and RLNG has decreased by 10%MoM and 17%MoM as the operators chose to give preference to other thermal sources amid the gas shortage in the country.
Average cost of generation for the month has dropped by 6%MoM to PKR10.1/kWh owing to the higher weight of Hydel in the generation mix along with reduced contribution from the costly RLNG. Moving forward, analysts expect the cost of generation to dip slightly in September.
HUBC has seen a decline in generation, with 15% less power purchased as compared to July and down 38%YoY. KAPCO has also experienced a dip in utilization, decreasing to 15% as compared to 30% in July as the usage of both gas and RLNG decreased in August, leading to a 49% decrease in generation.
As winters approach, global prices of thermal fuels are likely to skyrocket, as Europe scrambles to generate power from other thermal sources after the shutdown of the Nord-1 pipeline by Russia.
Coal, Oil and RLNG prices are expected to surge and it remains to be seen how Pakistan and its plant operators manage the generation mix, as Hydel generation in likely to decline.
According to the data released by NFDC, Urea sales in August 2022 witnessed a slight recovery, although down 15% as compared to last year to 552,000 tons (decline in July 22 was 26%). Sequentially, offtake improved owing to: 1) normalized production post-breakdown of both FFC and EFERT in July 2022, and 2) seasonality factor. The demand for 8MCY22 was reported at 4.3 million tons, as against 4.2 million tons last year. The offtake of FATIMA rose by 31%, while that of Fauji group and EFERT declined by 1% and 16%, respectively. Analysts remain overweight on the sector owed to handsome payout and sustainable earnings. However, offtake is likely to remain strained over the next couple of months owing to ongoing floods.
Urea ex-factory prices remained unchanged during the month, following the PKR350/bag increase in July 2022. However, dealer premium in the local market remained elevated during the month.
Industry Urea inventory level was reported at 195,000 tons in August 2022, down from 205,000 tons in the earlier month, while up from 187,000 in August 2021.
Owing to an expected slump in Urea demand, as agricultural landscape continues to remain affected from floods. Imported Urea demand will likely be replenished once the inundated area is rehabilitated.
DAP offtake declined to 26.000 tons, down a sharp 86%YoY, the lowest since February 2013, owing to spike in international DAP prices, PKR depreciation and recent floods.
During August, both FFC and FFBL reduced prices by PKR1,000/bag to PKR13,800/bag. DAP inventory increased to 426,000 tons from 374,000 tons a month ago.
Going forward, fertilizer offtake is likely to decrease in the coming months owing to the recent floods, before rebounding in the last quarter and normalizing in CY23. Also, in light of increased gas demand by Europe for winters, a lot of global fertilizer manufacturers are halting production, which will likely increase the international Urea prices.