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Stock Review

Stock review December 2022
Index gains 1.5%wow; sentiments may improve

Pakistan Stock Exchange remained range-bound during the week ended on September 08, 2023, with the benchmark index KSE-100 marginally fluctuating in the slim range of 654 points.

The fear of interest rate hike due to the increase in the T-Bills yields kept the market activity in check. However, positive developments over SIFC and the caretaker prime minister’s announcement of total expected inflows of US$50 billion from UAE and Saudi expected to materialise in the next 4-5 years added a substantial layer of positivity to this multifaceted narrative.

The KSE-100 index closed at 46,013 points with a gain of 1.55%WoW. Meanwhile, market participation declined by 26%WoW, averaging at 138 million shares. On the currency front, rupee strengthened against the greenback. Moreover, administrative measures yielded positive results, taking the gap between interbank and open market below 1% which was around 5% a week ago.

August trade deficit widened by 29.8%MoM to US$2.126 billion as compared to US$1.637 billion in July.

The foreign exchange reserves held by the State Bank of Pakistan (SBP) by US$70 million to US$7.8 billion as of September 01, 2023.

Other major news impacting the market include: 1) August 2023 petroleum sales declined 8%YoY to 1.41 million tons, 2) August cement dispatches rose by 37%YoY to 4.518 million tons, 3) Pakistan’s public debt surged 22% to PKR61.75 trillion in July and 4) IMF allowed leeway on electric bills, raises gas prices by 50%.

Sector-wise, Close-End Mutual Fund was the worst performer, while Transport, Automobile Parts & Accessories & Inv. banks/ Securities cos. were amongst the top performers.

Flow-wise, major net selling was recorded by Mutual Funds with a net sell of US$2.4 million. Individuals absorbed the selling with a net buy of US$3.6 million.

Top performing scrips were: GADT, DAWH, ILP, THALL, KAPCO, while the Laggards included: JWDS, ARPL, BAHL, EFUG and INDU.

Going forward, market is expected to remain range-bound due to the upcoming Monetary Policy Committee meeting on September 14, 2023.

Furthermore, government’s steps over energy reforms, and next review with the IMF may improve the market sentiments.

Analysts continue to advise investors to remain cautious while taking positions and invest in companies with strong fundamentals or high dividend-yielding scrips.

According to PAMA, Pakistan car sales were reported at 7,600 units, up 49%MoM, while down 36%YoY. Including Non-PAMA members’ sales were 9,000 up 46%MoM.

The significant MoM jump in car sales was due to the easing of CKD import issues. However, escalating car prices, rising auto financing, and declining purchasing power of consumers were among the primary reasons for the decline in YoY sales.

This took 2MFY24 sales to 12,671 units down 47%YoY as compared to 23,714 units in 2MFY23.

Pak Suzuki (PSMC) posted highest increase of 75%MoM to 4,268 units in August 2023 due to the increase in sales of Alto (up 92%MoM), Swift (up 103%MoM), and Cultus (up 72%MoM).

Hyundai sales were also up 37%MoM, with Tuscon sales up 42%MoM to 465 units.

Honda Atlas Car (HCAR) recorded an increase of 36%MoM to 674 units.

Indus Motors (INDU) sales up 13%MoM led by increase in sales of Fortuner and Hilux by 43%MoM.

The next meeting of Monetary Policy Committee (MPC) of State Bank of Pakistan is scheduled for September 14, 2023.

According to a survey by Topline Securities, 54% of participants expect interest rates to increase by 200bps, while 18% of participants expect an increase of up to 100bps in the policy rate. About 12% expect interest rates to increase by 150bps, and 10% expect a 300bps increase. Rest 7% expect no change while no one expect increase in policy rate by more than 300bps.

In the post MPC meeting on July 31, 2023, SBP Governor stated that data driven policy decisions will be made in future. In IMF Country Report, Staff also emphasized a continued tight, proactive, and data driven monetary policy is warranted going forward.

Since the last MPS, major developments have taken place and new data is now available which will likely be considered by the central bank committee in the upcoming meeting. These includes:1) Pakistan posted a Current Account Deficit of US$809 million in July 2023 after four consecutive months of Current Account Surplus, 2) local fuel (petrol & diesel) prices have increased by around 19 percent, 3) International oil prices in US$ have risen by 6%, and 4) PKR has depreciated by 6% against the US dollar.

Owing to the sharp spike in commodity prices, concerns over inflation, and the current account outlook, the cut-off yields in the recent T-Bill auction have increased.

To recall, Pakistan’s CPI Inflation in August 2023 came down to 27.4%YoY, from 28.3%YoY in July 2023 attributed to the high base effect from the last year along with lower food prices.

With recent increase in local fuel prices along with rupee depreciation against US dollar, the brokerage house has revised inflation estimate upward. It now expects the average inflation for FY24 to be 23%, as against its earlier estimate of 21%.

However, considering recent developments, the brokerage house also believe that the SBP may revise their inflation targets upward from the previous range of 20%-22% for FY24.

Considering all the factors mentioned above, the brokerage house expects an increase of 200bps, taking the rate to 24%, in the upcoming MPC meeting.

Responding to its question on PKR/US$ parity outlook in the interbank market by Jun-2024, 38% of the participants anticipate PKR/US$ parity to range in PKR320-PKR340 by June 2024. Around 25% expect it to be around PKR340-PKR360 while 21% expect it to be around PKR300-PKR320. On other hand, 12% expect it to be below PKR300, while 5% expect it to be above PKR360. It also expect PKR/US$ in interbank market to be in range of PKR320-PKR340 by June 2024.

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