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Window dressing helps benchmark index climb; political noise may push back bulls

The window dressing continued during last week of the year 2017. The benchmark index of Pakistan Stock Exchange (PSX) closed the week ended on 29th December 2017 at 40,471 points, up more than 1,000 points or 2.54%WoW. Aggressive buying by the mutual funds with net purchases of US$13.64 million lent support to the market. Overall trading volume also rose more than 55% WoW to 214.52 million. The volume leaders for the week were: WTL, TRG, KEL, PAEL and DSL. Key news flows impacting the market during the week under review included: 1) ECC allowing export of 3 million tons wheat and 0.3 million tons refined sugar and approving the FBR’s proposal to reduce Regulatory Duties on certain raw material items, 2) Fed government restricting import of furnace oil in a bid to extend relief to the domestic refineries and 3) GoP releasing another Rs2.5 billion under the PM’s export package, with cumulative amounts disbursed rising to Rs16.5 billion against total claims of Rs23.5 billion.

According to the data released by State Bank of Pakistan (SBP), profit repatriation soared to US$935 million, up 29%YoY during 5MFY18. While the gainers during the week were: CHCC, PIOC, GWLC, FCCL and DGKC; the laggards included: HBL, NCL, ENGRO, KEL and MLCF. Foreign net inflow was recorded at US$8.9 million as compared to a net outflow of US$5.4 million in the preceding week. With the start of New Year, ‘January Effect’ is expected to dominate the market going forward. Analysts see the market sustaining the recent bullish momentum. However, political noise can once again heat up if opposition parties led by Pakistan Awami Tehreek (PAT) opt for another protest in the Model Town case.

Pakistan’s foreign exchange are depleting fast due to rising imports and declining exports. The trend can be attributed to paltry inflow of foreign directed investment (FDI) and declining foreign remittances. Although, the government is busy in mobilizing foreign exchange through sale of Sukuk and Pakistan Investment Bonds, the situation remains far from satisfactory. The country’s reserves fell to US$20,189 million on 22nd December 2017. During the week under review the reserves held by State Bank of Pakistan (SBP) decreased by US$199 million to US$14,133 million, due to external debt and other official payments. The break-up of the total foreign reserves was: foreign reserves held by the central bank were reported at US$14,133 million and the net foreign reserves held by commercial banks were US$ 6,055 million.

With an objective to contain mounting current account deficit, the incumbent government has decided to allow export of two million tons wheat and 300,000 tons sugar by the public sector entities. The decisions were taken at a meeting of the Economic Coordination Committee (ECC) of the Cabinet which also granted tax and duty exemptions for Sukuk. The meeting presided over by Prime Minister Shahid Khaqan Abbasi, approved a proposal of the Ministry of National Food Security and Research to allow the governments of Punjab and Sindh to export 1.5 million tons and 0.5 million tons wheat and wheat products respectively before 30th June 2018.


Pakistani Banks have posted double digit growth in loans. The latest sector data released by the central bank indicates that banks’ balance sheet continued to grow in double digits (up 15%YoY during September 2017). While the sector continues on massive investment in government papers (IDR at 68%), analysts see an encouraging more than 20% YoY increase in advances during the month under review. The private credit off-take improved significantly with growth in consumer (+19.5%YoY) and SME (+12.2%YoY) segments. Despite increasing exposure in these segments, asset quality continues to improve with overall infected ratio coming down to 9.3% for September 2017 as compared to 11.3% for September 2016 and coverage improving to 85%. While spreads have improved to almost 5%, analysts expect further improvement during CY18. In this backdrop, analysts retain their liking for those scrips of the banking sector that enjoy: 1) the room to benefit from loan growth without compromising on the capital adequacy ratio, 2) growing proportion of current account deposits and 3) diversification through strong non-interest income.

Following its previous months performance of CY17, fertilizer off-take remained robust during November 2017 with the arrival of Rabi season coupled with continued support by the subsidy package. According to the latest figures released by NFDC, total fertilizer sales during the month under review was reported at 1.26 million tons, up 37%MoM. While urea sales increased by 60%MoM to 602,000 tons, DAP sales also registered a growth of 30%MoM to 502,000 tons during the month under review. However, on yearly basis, total fertilizer/Urea/DAP off-take came down by 20.8%/21.3%/20.5% respectively during the November 2017 on account of higher sales in the previous months. On a cumulative basis, total fertilizer sales posted encouraging growth of 13%YoY to 8.84 million tons during 11MCY17 where urea off-take posted a decent growth of 12%YoY to reach at 5.14 million tons. Near-term checkpoints for the fertilizer industry remain: 1) ongoing Rabi season to continue driving demand, 2) international urea prices rebounding to US$260/ton, up 60% since touching a low of US$163/ton in June this year and 3) normalization of inventory levels.

Byco Petroleum Pakistan Limited (BPPL) has announced financial results for the year ended 30th June 2017 (FY17). The Company has posted profit after tax of Rs2.1 billion, registering 50% increase over the same period last year. Byco’s operating profit posted growth of 14% for FY17 as compared to FY16. Byco has shown stable earnings growth over the last several years. For the last three consecutive years, the company posted operating profit of Rs3 billion or more. Earlier, BPPL received approval from the High Court to merge with its wholly owned subsidiary and its parent company to integrate various parts of its petroleum supply chain. BPPL’s FY17 earnings per share (EPS) of Rs0.26/share in consolidated accounts compared to its FY16 EPS of Rs0.40/share is a major achievement. Following the merger, the number of shares has increased by 542 percent to 5.3 billion shares as against 977 million shares last year. This shows the positive trajectory of the company’s results. After the merger, Byco Petroleum Pakistan Limited has become the largest oil refinery in the country with 155,000 barrels of refining capacity and is the only refinery with a dedicated oil terminal, Byco’s unique Single Point Mooring.

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