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Key supreme court rulings and declining forex reserves drag market lower

The week ended on 15th December 2017 witnessed the benchmark index of Pakistan Stock Exchange (PSX) declining by 1.11%WoW to close at 38,646 points. Average daily traded volume decreased by 4.39% WoW to 135 million shares. Pak rupee experienced 4.6%WoW erosion in value against greenback, raising concerns about hike in the cost of imported items, particularly POL products and industrial raw materials. Key news flows impacting the market during the week included: 1) Supreme Court ruling in favor of PTI Chairman Imran Khan in a disqualification case, while disqualifying PTI General Secretary Jahangir Khan Tareen, 2) Supreme Court also dismissing NAB’s appeal to reopen the Hudaibiya Paper Mills case, 3) Speaker of National Assembly hinting towards early dissolution of assemblies, 4) trade deficit for 5MFY18 surpassing US$15 billion and 5) steel manufacturers raising prices.

Gainers during the week were: EFERT, KAPCO, ENGRO, PPL and OGDC, while the laggards were: HASCOL, LUCK, PIOC, FCCL and APL. Top volume leaders included: TRG, KEL, PAEL, WTL and ANL. During the week, foreign outflow was recorded at US$8.87 million as against a net inflow of US$1.04 million a week ago.

Lately, Pakistan’s foreign exchange reserves were on the decline but issue of Pakistan investment bonds and Sukuk raised the total liquid reserves held by the country to US$20,686 million on 8th December2017. Reserves held by the central bank increased by US$2,006 million to US$14,666 million. Net foreign reserves held by commercial banks were reported at US$ 6,020 million. The reserves are likely to increase further after Pakistan gets payment under the Coalition Support Fund. However, half of the allocated amount US$350 million, requires certification by the US Secretary of Defence that Pakistan continues to conduct military operations that are contributing to significantly disrupting the safe havens, fundraising and recruiting efforts, and freedom of movement of the Haqqani Network in Pakistan.

The Quarterly Performance Review of the banking sector for July-September 2017 period by State Bank of Pakistan highlights less than normal seasonal fall in advances along with improved liquidity and strong solvency. Despite the seasonal net retirements in commodity financing and sugar sector, the overall gross advances to the private sector declined marginally. Advances demand from textile and other sectors (agriculture, automobiles, electronics etc.) have been promising. Noticeably, the share of fixed investment (long-term) advances in overall advances is persistently rising. Banks have continued to invest in short term Treasury Bills, while investment in PIBs and Sukuk posted a decline. The deposit mobilization remained on track, on the back of growth in saving and fixed deposits. Asset quality improved as non-performing loans (NPLs) to gross advances ratio declined to 9.2% at end September 2017. However, profitability has moderated further with the banking sector earning profit (before tax) of Rs 195.3 billion during nine months of 2017. Encouragingly, Net Interest Income (NII) improved on account of rising interest earned on advances. Capital adequacy ratio of the banking sector reported at 15.4% was well above the minimum required level of 10.65% and suggests that banks have enough buffers available to meet additional financing need of the market.


Lately, Federal Board of Revenue (FBR) imposed regulatory duty on the import of liquefied petroleum gas (LPG) at the rate of Rs4,669 per ton to generate about Rs1.5 billion worth of revenue during the remaining months of current fiscal year. The Economic Coordination Committee (ECC) of the cabinet in its meeting, held on 28th November approved the aforementioned regulatory duty. According to an FBR summary sent to the ECC on 23rd November, the imposition of regulatory duty was requested by the Ministry of Energy. It must be noted that the government had introduced a petroleum levy on locally produced LPG at the rate of Rs4,669 per ton (about Rs7 per kilogram). Thus, the ministry of energy had proposed that regulatory duty on the imported LPG shall be equivalent to the petroleum levy on the domestically produced/extracted commodity to provide a level playing field to importers and local producers.

The capacity utilization of the cement industry in the country reached the record level of 94.65% during the first five months of the current fiscal year. Dispatches increased by around 14 percent during the same period. According to the latest data for November, 2017, the increase recorded in cement domestic consumption during this month was 9.89%, with overall growth of the sector at 5.16%. During the month under review, the manufacturers located in the northern part of the country dispatched 2.967 million tons cement, which was 10.2% higher than 2.692 million tons local dispatches during the same month last year. The local dispatches in the southern region rose by 8.4% to 0.626 million tons in November 2017 from 0.578 million tons in November 2016. Exports from manufacturers located in the south took a major hit as exports went down by 45.4% to 0.070 million tons in November 2017 from 0.129 million tons in November 2016. Exports from northern region also decreased by 8% to 0.278 million from 0.350 million tons in the same month last year.

Overdue payments of independent power producers (IPPs) increased to Rs205 billion by the end of November 2017 as the government is dragging feet on clearing its payables. Alone in November, the amount government owes to IPPs was reported at Rs10 billion. Independent Power Producers Advisory Council (IPPAC), the key body representing private sector’s electricity producers, urged the Prime Minister to intervene into what they called the ‘serious financial’ crisis they are facing due to overdue receivables from National Transmission and Dispatch Company (NTDC) and Central Power Purchasing Agency. This (request) was in continuation to their previous letter dated 15th November 2017. The overdue amounts payable to 20 members of the IPPAC is still outstanding and growing every month.

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