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The benchmark index of Pakistan Stock Exchange (PSX) closed the week ended on 11th August at 45,288 points, dwindling 3.39%WoW or down 1,589 points. Despite ongoing result season, the KSW-100 Index weighed upon political uncertainty. Key news flows impacting the markets were: 1) reduction in retail prices of MOGAS and HSD, 2) GoP disbursing Rs25-30 billion to the exporters under PM’s package, 3) auto sales surging almost 18% YoY to 20,369 units in July this year, 4) total cement dispatches growing by 44%YoY to 3.382 million tons in July with local cement offtake registering staggering 55%YoY growth to 2.906 million tons and 5) trade deficit widening by 56%YoY to US$3.2 billion in July.

Average daily traded volumes plunged 45.57%WoW to 189.92 million shares where volume leaders were: ANL, TRG, KEL, SMBL and ASL. Performance wise the leading scrips closing the week on a positive note were: PSO, INDU and BAFL, while laggards included: MLCF, EFOODS, PSMC, ENGRO, and FFBL. Foreigners remained net sellers with US$31.16 million as compared to US$41.09 million a week ago. Ongoing show of strength by various political parties is expected to keep the investors on sidelines. Scrips like ISL, SHELL, HUBC, ABL, BAFL and ENGRO are likely to perform as they are scheduled to announce their results in the next week. Moreover, looming concerns of Pak Rupee depreciation can divert attention towards sectors with positive impact from the said move (Textiles, E&Ps and Power).

As reported earlier in these pages Pakistan continues to suffer from declining foreign exchange reserves. This may force the country to approach International Monetary Fund (IMF) for resolution of balance of payment crisis. Two of the recent news should be a point of concern for the policy planners. According to the first news during the week ended 4th August 2017, foreign exchange reserves of Pakistan were reported at US$20,003.7 million. The break-up of the foreign reserves was, the reserves held by the State Bank of Pakistan (SBP) amounted to US$14,398.8 million and the net foreign reserves held by the commercial banks were reported at US$5,604.9 million. The reserves held by SBP decreased by US$299 million due to payments on account of external debt servicing and other official payments. The other news was that overseas Pakistani workers remitted US$1,541.67 million during July 2017, as compared to US$1,328.18 million during the same period in the preceding year. During July 2017, the inflow of worker’s remittances amounted to $1541.67 million, which was 16.2% less than June 2017 but 16% more than July 2016.

Cement industry recorded an all-time high single month offtake during July. Total sales and exports grew by 44%YoY to 3.382 million tons during the month owing to a robust demand. According to data released by APCMA, cement sales and exports for the corresponding period last year was 2.333 million tons. Local cement dispatches rose by a whopping 55 to 2.906 million tons, while exports remained flat at 0.476 million tons during the period under review. The dispatches during July were most encouraging, as the industry posted a record. Never before, the sector had crossed the dispatch limit of 3 million tons in July. The turnaround after a dismal performance in June 2017 took the industry by surprise and the sharp increase in dispatches. The higher offtake was achieved despite political turmoil and unprecedented rains throughout the country.

According to a news report, Ministry of Finance has issued a notification regarding subsidy payment on Urea as announced in budget FY18. According to the notification, the amount of cash subsidy on urea has been reduced to Rs100/bag, from Rs156/bag. It is believed that urea manufacturer would partially pass on the benefit of this subsidy to the farmers. In case the manufacturers decide not to pass on the benefit to the farmers, earnings of fertilizer manufacturers are likely to be affected negatively. The Ministry has also notified mechanism for the disbursement that include: 1) subsidy to be shared by the federal and the provincial governments equally and 2) Provincial governments will deposit 50% of their total share of subsidy upfront in the existing Special Account in SBP and the balance 50% will be deposited after utilization of 80% of the funds initially deposited. In this regard, urea manufacturers are required to submit their subsidy claims along with GST invoices and GST returns to FBR on a monthly basis. The 80% of subsidy amount would be disbursed immediately, while remaining 20% would be released within 90 days, after third party verification of invoices submitted by the manufacturers.

According to a report by AKD securities, July 2017 total automotive industry sales grew to 20,369 units (+25.9%MoM/+17.9%YoY) taking 7MCY17 total industry offtake to 140,703 units (+13%YoY). Major constituents of total industry sales moved +19.8%/+12.1%/+8.2%/+15.2%YoY for Passenger Cars/LCV & Pick-ups/Trucks/Tractors while buses lagged (-12.6%YoY). Cumulative 7MCY17 total industry sales grew 13%YoY with LCV & Pickups/Trucks/Passenger car segments contributed +15.4/24.3+/+12.3%YoY. Over the period 1000CC/1300cc plus segment grew +45.6/+8.0%YoY and the 800cc and below inched up by +3.0%YoY lacking a new model jump witnessed in the other segments. On the production front, OEMs cemented their capacity factors over 7MCY17 with PSMC/INDU/HCAR producing at 67/112/83% of annual double shift capacity (as compared to 64/119/55% during 7MCY16). Citing catalysts for strong demand growth and mechanisms for controlling costs (particularly from exchange rate move analysts continue to advocate building positions in INDU.

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