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Bulls rally broadly on steel and cement shares; timely election bill and world bank loan key of support

The benchmark index of Pakistan Stock Exchange closed the week ended on 23rd December 2017 at 39,471 points. Broad-based recovery was led by strong performance of Steel and Cement sectors. Average daily traded volumes rose to 138.18 million shares with volume leaders being: TRG, WTL, KEL, DSFL and LOTCHEM. Key news flows impacting the market included: 1) the Senate passing delimitation of constituencies bill paving the way for timely election, 2) Nawaz Sharif nominating his brother Shahbaz Sharif (Chief Minister, Punjab) as the candidate for the prime minister in the next general election, 3) World Bank approving a loan amounting US$825 million to modernize the national power transmission system and improve health and education service delivery in Pakistan, 4) country’s current account deficit widening by 90.7%YoY to US$6.43 billion during 5MFY18, where both export/ imports witnessed upward trend, rising 12%/23.4%YoY to US$9.79 billion/US$21.88 billion and 5) United Motors revealing its plan to launch 800cc car and pickup in co-operation with Chinese bike maker United Auto Industries.

Performance leaders during the week were: UBL, HBL, NBP, FATIMA and BAFL; while laggards included: POL, GWLC, HUBC, APL and DGKC. Foreign participation remained in the negative zone with US$5.44 million outflows compared to US$8.87 million outflows in the preceding week. Renewed optimism in the local bourse on the back of positive development on the political front and stable international oil prices are expected to drive bullish momentum in the week ahead. Moreover, market may also continue to take cue from fund managers’ yearend window dressing before 2017 ends.

The receivables of the state-run Pakistan State Oil Company (PSO) reached Rs317 billion by December 1, 2017. The total receivables from power sector rose to Rs196.5 billion including Rs64.40 billion generated after the inception of seven-day credit arrangements. The PSO is also continuously meeting PIA’s demand of jet fuel. However, PIA is not making payments to PSO to settle outstanding dues, and as a result the principle amount has swelled to Rs13.8 billion by the end of November 2017. Besides, an amount of Rs13.4 billion was also on receivable head from the SNGPL on account of the LNG supplies.

The power sector remained a major defaulter and multibillion rupees had been stuck in this sector following ban of use of furnace oil. The PSO has been major supplier of furnace oil to the power sector. The Petroleum Division had sought intervention of Cabinet Committee on Energy in its recently held meeting to clear bills of the PSO to avoid disruption in oil and gas supply chain.

According at the data released by State Bank of Pakistan (SBP), Pakistan’s outstanding external debt and liabilities increase by 2.4 percent to US$85.052 billion during July-September 2017 quarter from US$82.981 billion recorded till the end of the preceding quarter. External debts were reported at US$67 billion by the end of September, up from US$66.1 billion the previous quarter. Data released by SBP revealed that the country’s foreign debt and liabilities were slightly more than 25% of gross domestic product, while external debts were equivalent to almost 20% of GDP in the July-September period. The long-term debts were reported at US$56.237 billion and the short-term debts at US$960 million during the period under review. The increase in the external debt was stemmed due to the disbursement from international financial institutions, bilateral loans from China, foreign commercial banks and Sukuk and bond proceeds.

 

Lucky Cement has increased its production capacity by more than 20$ to 9.35 million tons per annum. The construction and installation work for brownfield expansion for the additional line of 1.3 million tons per annum at the Karachi plant has been successfully completed,. The new line became operational with the commencement of clinker production on 12th Dec ember 2017. With the addition of this new line in Karachi for 1.3 m tons and certain efficiency improvements brought about recently in the other two production lines in the north plant for another 0.3 million tons, the total production capacity has now increased to 9.35 million tons from 7.75million tonsper annum. Regardless of the positive development, the share of Lucky Cement became a major victim of the extreme bear market.

The overall net investments of the banking sector surged by 1.8% during the third quarter of calendar year 2017 as against a decline of 2.5% during the corresponding period of last year. Investment in government securities have remained the prime driver behind investments growth. Following the recent trend, banks have continued to invest in short-term Market Treasury Bills (MTBs) and have divested Rs11.7 billion from Pakistan Investment Bonds (PIBs) and Sukuks the quarter under review, according to Quarterly Performance Review of the Banking Sector issued by the State Bank of Pakistan. Consequently, the share of MTBs (in total net investments) has increased to 52.6% Q3CY17 as compared to 42% forQ3CY16, The share of PIBs in total investments also declined to 35.3%. The offer-to-target ratio for PIBs auctions also declined to 0.36% during Q3CY17 as compared to 3.32 for Q3CY16, which reflects reduced banking sector interest in long-term government securities.

An agreement for production of light commercial and passenger vehicles has been signed between the Ministry of Industries & Production and KIA Lucky Motors. According to the details, the company will invest $115 million for setting up an automobile assembly plant in Karachi that will produce wide range of commercial and passenger vehicles. The agreement has been signed for production of light commercial and passenger vehicles under Automotive Development Policy 2016-2021. Pakistan auto sector took a big leap with the inauguration of Hyundai plant in Faisalabad. The new auto policy announced last year is finally bringing fruits for Pakistani consumers, said the official. The Korean auto giant KIA Motors is a favorite brand in GCC, US and European markets. KIA products range from low-cost hatchbacks to luxury sedans, from crossovers to SUVs, most of them with plug-in hybrid variants as well. The new automobile policy is attractive for new automaker participants in Pakistan’s growing car market.

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