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The week ended on 22nd June 2017 remained highly volatile due to political uncertantity eminating from Panama Papers case hearing. The benchmark index of Pakistan Stock Exchange (PSX) touched a low of 44,914 on Tuesday, but finally managed to close the week at 46,332, posting a nominal decline of 1.1%WoW. The news flows impacting the market included: 1) net foreign direct investment exceeding US$2 billion during the 11MFY17, China emerging the top investor with US$878 million, 2) textile and clothing exports declined to US$11.23 billion during first eleven months of the current financial year, 3) Ministry of Industries and Production allowed KIA‐Lucky Motors Pakistan, Nishat Group and United Motors to setup plants for assembling of vehicles with an estimated cumulative investment of US$372 million, and 4) NEPRA has approved Rs1.90 per unit reduction in power tariff for May’17 under monthly fuel adjustment formula. During the week volume leaders were: KEL, TRG, BOP and EPCL. Top gainers of the week were: NM, HUBC, AKBL (+3.74%WoW), EPCL, whereas laggereds were: INDU, FFBL, LOTCHEM and HASCOl. Despite the recovery evident in the last few days of the week, the political uncertainty continues to deepen investors’ sentiment. Next week will be shortened due to the Eid holidays. Subsequently, June‐end results season may bring some respite.

Since this week most of the stories cover the federal and provincial budgets, two of the topics having serious implications for the stock market needs to be dealt with very carefully. These are 1) deteriorating balance of payment situation and 2) offering incentives to textiles and clothing industry, having the largest share of over 60 percents in Pakistan’s total exports. The balance of payment is getting precarious due to the ballooning import bill, shrinking exports as exporters are losing competitiveness and declining inflow of remittances.

Pakistan’s total exports during May’17 declined to US$1.627 billion. Both textile and food exports slipped to 5-yearr low. Textile exports were down to US$938.5 million. On cumulative basis 11MFY17 textile exports declined to US$11.234 billion as compared to US$11.461 billion for the corresponding period of last year. Going forward, downward pressure on textile exports is likely to continue because: 1) liquidity crisis, 2) subdued demand and 3) rising raw material cost.

The total liquid foreign reserves held by Pakistan exceeded US$20,361 million on 16th June 2017, . The reserves held by State Bank of Pakistan were reported at US$15,420.8 million, up by US$125 million, reserves held by commercial banks amounted US$4,940.2 million. Rising deficit and eroding foreign exchange reserves are likely to have an adverse impact on the exchange rate. As also stated in one of the write ups, timely foreign inflows (US$600 million) during the current financial year (FY17) may partly compensate outflows of almost double the amount – US$1.2 billion repayment (Eurobond/Paris Club) within FY17. However, the paltry inflows don’t offer any sustainable solution and may force the country to once again approach the IMF.


According to the data officially released by the Government of Pakistan, the trade deficit for May’17 alone has been reported at US$3.46 billion, reflecting declining exports and rising imports. On a cumulative basis trade deficit rose to almost US$30 billion during 11MFY17. The import bill surged to US$48.6 billion, mainly due to the surge in machinery import for the power projects being part of CPEC. On top of that high POL and LNG import also grew. There was a 3.1%YoY decline in exports to US$18.5 billion during 11MFY17. Decline in exports is attributed to delays in implementation of the relief package announced by the government at the start of CY17. The total remittances received during 11MFY17 have been reported at US$17.46 billion, still 2.1%YoY lower as compared to the corresponding period of the last financial year. A pleasant deviation has been an increase in remittances from the US. Rising by 23.1%YoY/24.6%MoM. This can be attributed to a low base. However, flows from the GCC region – barring 12%YoY rise from UAE – remained lackluster.

According to a research report by AKD Securities, Nishat Mills has registered 38%YoY sales growth in garment segment during 9MFY17. The brokerage house expects this trend to continue and support topline growth. In addition healthy payout by associate companies is likely to keep earnings growth robust. The Company enjoys upside potential with entry into automobile sector. The growth in garment segment was on account of capacity expansion where higher utilization level in future is to likely to drive topline growth. While budgetary imposition of higher tax on dividend income shall negatively impact FY18F earnings, the impact remains limited as the company earns 40% of dividend income from power sector where tax rate remains unchanged at 7.5%. Entry in auto assembly is likely to provide new impetus. The Company has recently signed a joint venture agreement with Hyundai Motor Company (HMC) and Sojitz Corporation Tokyo to assemble and market HMC’s passenger and one-ton commercial vehicles. In this regard, an associate company Hyundai Nishat Motor (Private) Limited has been established, where news flows suggest Nishat Group to likely own 42% share of the associate company with remaining 40% and 18% share being held by Sojitz and MTL respectively.

Maple Leaf cement is adding 2.19 million tpa brownfield expansion capacity that is likely to come online in 4QFY19. This expansion is expected to enhance the company’s capacity to catch up with the rising domestic demand as well as earnings. Besides this, work on a 40MW captive coal power plant is nearing completion and expected to commence operations online in August 2017. Being the cheapest source of electricity, the coal power plant is likely to meet 75% of the company’s total electricity requirement and a positive impact on earnings.

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