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Stock Review

Stock review December 2022
Index remains under pressure, next IMF plan supportive

Pakistan Stock Exchange remained volatile throughout the week, with early correction leading the benchmark index to dip below the psychological barrier of 75,000 points. However, the bulls staged comeback on the last trading day, gaining 1,000 points.

Overall, the KSE-100 index ended the week down by 105 points or 0.14%WoW, closing at 75,878 points on May 31, 2024.

Uncertainty surrounding the upcoming budget fuelled volatility and profit-taking. With just a week remaining before the budget announcement, concerns have risen over the IMF’s high tax proposals.

Reports suggest abolishing all sales tax exemptions, except for some essential food items, and increasing the standard GST from 18% to 19%.

The budget announcement is expected to coincide with the upcoming Monetary Policy Committee (MPC) meeting, potentially causing delays as Prime Minister Shehbaz Sharif will be on an official visit to China.

May 2024 CPI inflation is projected to be 12.8% YoY. As the inflation outlook eases, the cut-off yields in the latest T-Bills auction dropped by 60bps for 3-month papers. Similarly, secondary market yields for 3-month papers fell by 118bps to 20.44%. The declining yields indicate a potential coupon rate cut in the upcoming MPC, which brought some positivity to the market.

However, with the budget’s impact still uncertain, an imminent interest rate cut in the upcoming MPC seems unlikely.

With an overall volatility in market, participation also decreased by 8.5%WoW, with the average daily traded volume falling to 511 million shares from 558 million shares a week ago.

On the currency front, PKR depreciated by 0.04%WoW to close at PKR278.33/US$.

Other major news flows during the week included: FBR announced plan to collect PKR1.296 trillion through duties, 2) Country borrowed US$7.142 billion during Jul-Apr period, and 3) Credit to private sector declined 39.7%YoY.

Top performing sectors were: Inv. Banks/ securities, Leather & Tanneries, Engineering were amongst the top performers, while laggards included: Transport, Woollen, and Property.

Flow wise, major net selling was recorded by Mutual Funds with a net sell of US$8.9 million. Insurance companies absorbed most of the selling with a net buy of US$13.1 million.

Top performing scrips of the week were: MUGHAL, FABL, FCCL, SYS, and SCBPL, while the laggards included: SHEL, PSX, BNWM, GLAXO, and YOUW.

Market performance is expected to hinge on the upcoming Federal Budget 2025, with the next MPC meeting also remaining in the spotlight.

Though, the possibility of a coupon rate cut is slim, however, any cut would likely boost positivity, especially in the cyclical sector.

Following the budget approval, the next IMF programme will take centre stage and become a key market trigger in the near term.

According to Taurus Securities, during May 2024, petroleum products offtake surged by 26%MoM and 7%YoY to 1.4 million tons. The increase was primarily driven by the increase in sales of MS and HSD, up 1%YoY and 18%YoY, to 0.607 million tons and 0.643 million tons, respectively.

On a sequential basis, the volumetric sales surged significantly, up 26%MoM mainly due to increased sales of MS, HSD and FO.

To highlight, the crackdown by Government to curb the influx of Iranian smuggled oil poised well for HSD demand. Wherein, the HSD demand from legal channels increased by 44% resulting in 20,000 to 22,000 tons/ day as compared to 14,000 to 15,000 tons/day.

Cumulatively, the oil sales volume was recorded at 13.8 million tons in 11MFY24, reflecting a decline of 10% compared to the same period last year. The decline was primarily due to lower sales of MS, HSD, and FO, down 5%YoY, 2%YoY, and 52%YoY, respectively owing to higher oil prices.

The MS price increased 16%YoY, averaging at PKR283/litre. Accordingly, during 11MFY24 the sales volumes for PSO, SHEL, APL and HASCOL plummeted by 10%/13%/4%/3%YoY, respectively to 6.9 million tons, 1.01 million tons, 1.4 million tons and 0.35 million tons.

However, on a sequential basis, the off-take for PSO, SHEL, APL, and HASCOL increased by 19%/ 23%/ 42%/ 51%MoM, respectively on the back of higher HSD and MS sales.

In terms of market share, PSO’s market share increased to 48% in May’24, followed by APL (10%) and SHEL (7%). However, HASCOL and other companies market share declined to 3% and 32%, respectively.

The current estimated PDL recovery from MS and HSD is expected to have accumulated to PKR 902 billion during 11MFY24 surpassing the target of PKR 869 billion for FY24.

Additionally, the upcoming budget measures (in-line with the IMF recommendations) suggest the expected increase in PDL levy up to PKR 100/litre or introduction of carbon levy along with an expected imposition of 18% GST on petroleum products result in a substantial hike in POL prices, going forward which is anticipated to further put pressure on the volumes.

OPEC Plus agreed on Sunday to extend most of its deep oil output cuts for 2024 but to start phasing them out in 2025, as the group seeks to shore up the market amid tepid global demand growth, high interest rates and rising rival US production. OPEC Plus will hold its next meeting on December 01, 2024.

Oil prices trade near US$80 per barrel, below what many OPEC Plus members need to balance their budget. Worries over slow demand growth in top oil importer China have weighed on prices alongside rising oil stocks in developed economies.

The Organisation of the Petroleum Exporting Countries and allies led by Russia, together known as OPEC Plus, have made a series of deep output cuts since late 2022.

OPEC Plus members are currently cutting output by a total of 5.86 million barrels per day (bpd), or about 5.7% of global demand.

The cuts include 2 million bpd by all OPEC Plus members, the first round of voluntary cuts by nine members of 1.66 million bpd, and the second round of voluntary cuts by eight members of 2.2 million bpd

OPEC Plus extended the first round of cuts until the end of 2025 from the end of 2024, the group said in a statement.

The group also agreed to allocate the United Arab Emirates a higher production quota of 3.5 million bpd in 2025, up from the current level of 2.9 million.

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