Trading volume declines 14.4% WoW
During the week ended on October 21, 2022, the focus of investors remained on the current account position, besides the upcoming FATF plenary. The benchmark index remained flat and closed at 42,213 points, up 0.6%WoW. The average volume for the index continued downward trajectory, dropping to 228 million shares down 14.4%WoW.
Major news flows during the week included: 1) Q1FY23 Current Account deficit down by 37%YoY, 2) Trade deficit shrinks by 30.2%YoY in September, 3) Gas sector circular debt bloats to Rs1.5 trillion, 4) Pakistan receives only US$88 million assistance against US$816 million flash appeal, 5) Pakistan seeks rescheduling of US$27 billion debt and vi) country’s foreign exchange reserves inches up to US$13.250 billion.
The top performing sectors were: Tobacco, Close-end Mutual funds, Synthetic & Rayon, Modarabas and Power Generation & Distribution, while the least favorite sectors were: Woolen, Textile Weaving, Sugar & Allied Industries, Oil & Gas Marketing and Automobile Parts & Accessories.
The top performing scrips in the KSE-100 were: PAKT, HGFA, PGLC, SNGP and AKBL, while laggards included: BNWM, SHEL, HCAR, NRL and SRVI.
Foreigners emerged the biggest sellers, offloading US$3.4 million followed by Banks & DFI (US$1.5 million), Mutual funds (US$1.3 million), Companies (US$0.4 million) and Other Organizations (US$0.2 million). While Individuals, Brokers and Insurance Companies were on the buying side, with a net buy of US$5.4 million, US$0.9 million and US$0.6 million respectively.
Amid the volatile local political situation, the name of the game is waiting and seeing. If the political turmoil dampens, some may view it as a bull-trigger for the market, while the potential of anarchy may keep some away. Moreover, with the outcome of the FATF plenary scheduled to be announced on Friday night, the result will boost/suppress the market.
It is likely that the country will be removed from the grey list of the global money laundering and terrorism financing watchdog, which will in turn increase the flows of foreign funding into the equity market.
The PKR continued its decline which started last week and lost 1.1%WoW owing to the speculation regarding changes in the Finance Ministry. Keeping in view the uncertainty, near-term outlook for the equity market remains hazy as both bear and bull-run triggers loom overhead.
Textile exports during September 2022 inched higher to US$1,527.1 million, higher 3%YoY, but declined by 3%MoM as compared to August. The MoM decline can be attributed to the Readymade Garments segment, down by 16.1% MoM—a product of a 14%MoM dip in quantity exported, and 2%MoM dip in average prices. Value-added textile exports were down by 3%MoM, but up 3.9%YoY. The exports of non-value added textile goods were down by 3.3%MoM and 2.2%YoY. On a quarterly basis, Value-added textile exports were up 5.3%YoY to US$3,748.6 million in 1QFY23, largely driven by a 15.4%YoY increase in knitwear exports and 5.8%YoY increase in Readymade Garments. Overall textile exports increased by 3.7% for the quarter to US$4,583.3 million. International cotton prices have eased recently. On the local front, cotton prices dropped by 22% since end August 2022 to PkR18,755/40kg. In the aftermath of the recent floods and the devastating loss of cotton crop—particularly in Sindh—raw material mix for textile players this year may tip even further in favor of imported cotton. However, the import data thus far suggests heightened imports are yet to start, with 143,166 tons of raw cotton having been imported in 1QFY23 as compared to 166,524 tons in the same period last year, while textile exports have remained robust in 1QFY23 (up 3.7%YoY), a slowdown is likely as India and Bangladesh exports resume. Furthermore, the textile sector has claimed delayed GST recovery from the GoP, which could dent the exporting capabilities of the textile sector.
AKD’s Banking Universe profitability is estimated to post robust growth in 3QCY22, where cumulative growth in net profit will likely rise by 22%QoQ and 97%YoY on the back of better asset pricing and normalized effective taxation. On the flipside, higher credit cost and admin expenses will keep the full scale growth in earnings in check. The payout from the universe is also likely to remain robust with CY22 dividend yield to remain around 13% for the banks under coverage. Robust payout comes on the back of adequate capitalization that most banks maintain, with the only major exception of HBL whose CAR was reported at 11.4% last quarter. Nonetheless, the CAR of the universe will likely recede on a QoQ basis owing to adverse interest rate movements in both the local and foreign currencies. Some support may come from PKR depreciation witnessed in the quarter which will result in gains and higher profitability during the quarter. The brokerage house anticipate a bloated cost of risk of 30bps in 3QCY22, reflecting a nominal rise on QoQ basis. However, broader asset quality is expected to largely remain intact. The brokerage house has built higher cost of credit for this quarter in its projections, owing to general slowdown in economic activity, higher cost of credit and higher general provisions. Valuations have opened up significantly over the past few months, as a result, the covered banks have shed 23% in CY22TD, making current valuations very attractive.
Attock Petroleum Limited (APL) is expected to announce its 1QFY23 financial result on October 25, 2022, where analysts expect the Company to post profit after tax of PKR124 million (EPS: PkR1.0). The said decline is mainly attributable to falling ex-refinery prices over the last quarter, where in they peaked back in mid-June 2022 at PkR249 and PKR277/liter for MS and HSD, respectively. The Company is expected to record inventory losses of PKR855 million (PKR8.6/share) for 1QFY23, subsequently resulting in gross margins for the quarter to end at 1.1%. With fuel prices (MS/ HSD) forming a new base at current levels, analysts believe this to be the end of exorbitant inventory gain/loss fluctuations in the near-term, normalizing earnings in the fourth quarters.