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INDEX RECORDS MARGINAL INCREASE; MARKET TO REMAIN RANGE BOUND

During the week ended on 8th September 2017, the performance of Pakistan Stock Exchange (PSX) remained lackluster. The benchmark Index increased marginally and closed at 41,401. Key news flows affecting the market included: 1) CPI based inflation for the month of August 2017 was recorded at 3.41%YoY; 2) in an out of court settlement, HBL has agreed with New York Department of Financial Services (DFS) to pay a fine of US$225 million; 3) Pakistan’s total foreign exchange reserves increased to US$20.387 billion during the week ended 31st August 2017, up by 1.93%WoW; 4) OGRA has officially notified revised well head gas price for PPL’s flagship field ‘Sui’, where the new price is Rs286/mmbtu (previously at Rs149/mmbtu), up by 92 percent and; 5) the Trump administration has reportedly held back previously promised military aid of US$255 million to Pakistan by attaching new conditions.

Top performers for the week were: ASTL, EFOODS, OGDC and PPL, whereas laggards included: HBL, HASCOL, PIOC and CHCC. Average daily traded volume declined by almost 20% WoW to 136 million shares. In a triggerless backdrop market is expected to remain range bound, with investors switching to side‐board stocks with stock picking remaining key. Momentum could build on the back of political consolidation coupled with positive developments in the energy sector and upcoming year‐end results and payouts by the upstream oil & gas companies.

Net income of Pakistan Stock Exchange (PSX) more than doubled to Rs277.29 million (EPS: Re0.35) for the year ended June 30, 2017 as compared to net profit of Rs132.27 million (EPS: Re0.17) in the past fiscal year. The Board of Directors approved payment of a final cash dividend of Re0.2/share, which was in addition to an interim dividend of Re0.10/share already paid to the shareholders. The net revenue of PSX decreased 11.5 percent to Rs1.063 billion for FY17 as compared to Rs1.203 billion for FY16. In June, the PSX made the initial public offering (IPO) of its 20 percent (160.295 million shares) of its stakes in line with its demutualization process that already resulted in a sell-off of the Exchange’s strategic 40 percent stake to Chinese-led investors.

According to an AKD Securities report, Pakistan Stock Exchange (PSX) posted the highest monthly decline in August 2017 for the year, the benchmark Index eroded by nearly 10.5%. Political uncertainty after the disqualification of Nawaz Sharif marred the sentiments. Additionally, a mixed result season, concerns about a subdued cement sector and imposition of a sizable fine on HBL kept the market under pressure.

Local investors encouragingly absorbed foreign selling of nearly US$80.5 million during the month under review. The performance of the main board scrips remained dismal. Trading activity picked up with average average trading volume rising to 201.9 million shares from 175.4 million shares. The traded value also rose to US$97.2 million from US$91.9 million a month ago. Local corporates, Banks/DFIs and Insurance companies remained the largest net buyers. Despite facing redemption pressures, local mutual funds recorded a net inflow of US$6.7 million) after the sizable off loading of US$30.6 million in July 2017. Domestic political developments and geopolitical concerns are likely to impact market’s performance in September 2017. The ongoing earnings season, particularly with full year likely payouts by oil & gas sector may stimulate market performance.

According to the provisional statistics, cement dispatches during August 2017 grew by 17.6% MoM/10.9% YoY to reach a monthly peak of 3.98 million tons, the previous high was 3.96 million tons in March 2017. The domestic dispatches of 3.53 million tons growing by 21.3% YoY/16.5% MoM, continued to drive total offtake. Growth in domestic dispatches in August 2017 was led by a sharp increase in PSDP spending and seasonal slowdown (Ramazan and extended monsoon) seen in previous months. However, exports continued to slide by 5.5% MoM/19.3% YoY to reach just 0.450 million tons in August. On a cumulative basis, total dispatches grew by 24.4% YoY during 2MFY18 as compared to 11.0% YoY growth recorded in 2MFY17 led by demand growth of 31.4% YoY in 2MFY18 as compared to13.8% YoY in 2MFY17. Despite post Eidul‐Azha and present spell of rainfall, analysts anticipate total dispatches to post healthy growth going forward.

As anticipated, fertilizer offtake declined significantly during July 2017 (down 32% YoY/48% MoM), having posted extraordinary sales of 1.43 million during June 2017. According to latest figures released by national Fertilizer Development Corporation (NFDC), total fertilizer sales in July-2017 were reported at 746,000 tons as against 1.10 million tons in July-2016 (down 32% YoY/48% MoM). Similarly, urea sales also came down by 56% YoY/68% MoM to 339,000 tons, after heavy urea procurement by dealers in June 2017. Furthermore, imported urea sales declined to 46,000 tons in July 2017, despite the availability at a significant discount to locally produced urea. DAP sales on the other hand registered a growth of 42% YoY/153% MoM to 283,000 tons in July 2017. On a cumulative basis, total fertilizer sales posted growth of 23% YoY to 4.88 million tons during7MCY17 where urea offtake posted a decent increase of 17% YoY to 3.04 million tons.

In the backdrop of industry’s weak pricing power and relatively higher inventory levels (urea inventory standing at 1.15 million tons), however, analysts don’t expect any improvement in the local and international prices.

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