Bullish momentum likely to continue
The pre-budget rally continued throughout the week ended May 17, 2024 with Pakistan Stock Exchange benchmark index closing at its historic high, as the bears failed to seize control at every turn and investor’s confidence remained high, driving the market to sustained gains. The benchmark index closed at 75,342 points on Friday with a gain of 2,257 points, up 3.09%WoW.
The market’s bullish momentum was mainly attributed to recent talks with the IMF proceeding smoothly, without any hiccups. Further, SPI weekly inflation was consistently on downward trend for the past five weeks, indicating a tapering down of CPI figures for the ongoing month.
Prices of petroleum prices, MS and HSD were decreased by PKR15.39 and PKR7.88 per liter, respectively, in the last fortnightly review. Yields in the mid-week T-Bill auction also declined slightly.
Of significant importance, current account for April 2024 posted another surplus of US$491 million, lowering 10MFY24 deficit of mere US$202 million. With just two months left, FY24 CAD is expected to close substantially below the IMF’s forecast of US$3 billion.
Confirmation of the withdrawal of tax exemption from the FATA/PATA region has instilled overall positivity in the steel sector.
Alongside, additional revenue measure recommendations from IMF team comes on surface including proposals to increase withholding advance tax across automobile, real estate, and agricultural sectors.
Average trading volumes were down by 22.7%WoW to 554.50 million shares, as compared to 717.34 million shares traded in the earlier week.
Other major news flows during the week included; 1) during H1FY24, driven by agri sector, real GDP grew by 1.7% as per the central bank, 2) foreign investment peaked by 84% to 30-month high and 3) Ministry of Finance refused to extend subsidy on urea fertilizer due to financial snags.
Top performing sector were: Automobile parts & Accessories, Engineering, Synthetic & Rayon, Real Estate Investment Trust and Woolen, while Cable & Electrical goods, Close-end Mutual Fund, Transport, Tobacco and Power Generation & Distribution were amongst the worst performers.
Major selling was recorded by Banks/DFI with a net sell of US$9.85 million. Foreigners absorbed most of the selling with a net buy of US$14.94 million.
Top performing scrips of the week were: THALL, INIL, PSX, PKGP, and ISL, while top laggards included: PAEL, PTC, AGP, KEL, and NPL.
Market is anticipated to remain focused on FY25 budget related news in the near term. Overall, some profit taking can be expected with the index at its record high. However, with foreign buyers consistently purchasing, the rally is expected to continue amidst the market’s attractive valuations.
The upcoming MPC meeting, scheduled just after the budget, will also be in the limelight.
Despite real interest rates being significantly positive, new taxation measures could pose a risk to the inflation outlook and possible start of monetary easing.
During April 2024, the textile exports amounted to US$1.2 billion, reflecting a steady uptrend since last 5 months. However, on a sequential basis, the exports declined 5%MoM.
During 10MFY24 cumulative textile exports were reported at US$ 13.75 billion indicating a slight decrease of 0.2%YoY.
During the month, basic textile exports declined to US$191 million, down 11%YoY, primarily attributed to reduced exports of cotton cloth. Similarly, other textile exports witnessed 4%YoY drop to US$145 million.
On the flip side, value added exports showed a positive trend posting 4%YoY increase to USD$901 million, driven by higher exports of knitwear and readymade garments, up 1% and 18%, respectively.
During 1QCY24, exports of cotton yarn to China surged by 66%, mainly due to the growing demand for Pakistan’s cotton textiles in both the Chinese export and domestic markets. This has increased opportunities for higher exports and also opens up prospects for accessing the Chinese domestic market in the future.
The industry is facing significant challenges due to soaring energy costs. However, with the forthcoming budget, the Government is planning to reduce tariffs for export oriented industries, subject to approval from the IMF. This move is anticipated to positively impact local production and export activities within the industry.
Urea offtakes for April 2024 was posted at 328,000 tons, a decline of 51%MoM due to seasonal impact and reduced supply amid EFERT’s plant closed for turnaround.
FFC urea sales witnessed an increase of 40%YoY to 187,000 tons, with its market share rising to 57%, mainly driven by lower prices compared to competitors.
EFERT’s urea offtakes declined by 49%MoM and 52%YoY due to EnVen plant turnaround.
DAP volumes for the month totaled 92,600 tons, a decline of 13%MoM, attributed to lower demand due to an expected delay in Rabi sowings amid the ongoing wheat crisis.
Recent developments indicate that government and fertilizer players are nearing an agreement, with the authorities aiming to ensure uninterrupted supply of gas at unified rates to the sector in exchange for regulated urea prices.
AKD Securities maintains its bullish stance on the sector due to higher dividend yields, with EFERT and FFC likely to post dividend yield at 18% and 17%.
International Monetary Fund (IMF) issued a press release and staff report on the second review under the Stand-By Arrangement (SBA), which followed a disbursement of US$1.1 billion to the country in late April 2024.
IMF’s medium term growth outlook remains broadly unchanged, projecting the country’s growth for FY25 (3.5%), FY26 (4.5%) and FY27 (5.0%).
Staff report appraised that headline CPI continues to decline partly aided by favorable base effects and easing core inflation.
IMF expressed overall satisfaction with the authorities with regards to meeting stipulated criteria, targets and benchmarks under the SBA program, however, indicated that political uncertainty remains significant.
Auto sales continued to improve in April 2024, with total industry sales rising to 13,800 units, an annual increase of 77%. Passenger car and LCV sales witnessed an increase of 12%MoM.
HCAR reported total sales of 1,003 units, due to an increase driven by a low base effect, with the company’s plant facing closure for the entire month of April 2023.
INDU witnessed an increase of 21%MoM and /6%YoY, reaching 2,065 units in April. Notably, the newly launched Corolla Cross maintained robust sales at 805 units, aided by the introduction of non-hybrid variants at competitive prices.
PSMC sales increased by 46%MoM, notably, ‘Alto’ being the entry-level car, recorded higher monthly sales in CYTD, reaching 4,786 units, up 64%MoM.
‘HAVAL’ sales from SAZEW remained robust at 551 units in April, up 8%MoM.
Despite monthly improvement in auto sales, full recovery in the sector is expected to take time.