Strong results season, mutual funds pick up help bulls back in the ring
During the week ended 19th January 2018, the benchmark index of Pakistan Stock Exchange (PSX) posted an increase of 2.9%WoW and closed at 44,179 points. The Index gain was supported by a strong results season and renewed interest of mutual funds. The key news flows impacting the market were: 1) an export package to be introduced aiming at reducing electricity and gas tariffs for industries, along with other incentives, 2) expected announcement of an amnesty scheme, 3) SECP rationalizing licensing regime for securities brokers and 4) FBR imposing stringent remittance-linked conditions for used car imports. Stocks leading the bourse included: GWLC, CHCC, DGKC, LUCK, whereas laggards were: EFOODS, PTC, and KEL. Average daily traded volume declined by 33.4%WoW to 184.1 million shares, with volume leaders being: ANL, TRG, DCL and PIAA.
During the week ended 12th January2018, foreign exchange reserves held by State Bank of Pakistan (SBP)declined by US$284 million to US$13,699 million due to external debt servicing and other official payments. The total liquid foreign reserves held by the country also declined toUS$19,771.5 million. Net foreign reserves held by commercial banks were reported at US$6,072.5 million. One of the major sources of foreign exchange is influx of foreign direct investment (FDI), which declined by 2.8% to US$1.38 billion for the first half of 2017-18. China now dominates FDI with a share of more than two-thirds in total inflows. Beijing emerged first as the largest trading partner of Islamabad and now it has become the top foreign investor. Inflows from countries other than China came down drastically during the period under review. FDI from China was reported US$969 million during the six months, which constituted 70% of total inflows. During the same period of the preceding fiscal year, investment from China amounted to US$393 million and constituted 27.6% of total inflows.
Banking sector spreads were reported at 4.90% for November 2017 on outstanding loans, unchanged for last two months in a row. While spread on fresh disbursements declined to 3.62% for the month under review from 3.68% for October 2017. The downward trend in spreads on fresh disbursements can be attributed to rising cost of funds. Competition for low cost funds is the biggest contributor to surge in fund cost. There was increase in credit spread but the lending spread registered higher increase on account of rising yield on fresh disbursements. Loans to private sector rose to Rs4.6 trillion, up 20% YoY in November 2017 according to the latest data released by State Bank of Pakistan. High-yield segments like SME, Corporate and Consumer Finance recorded the most growth in loans to the private sector.
According to a brokerage house, banking sector advances grew by 17% to Rs6.53 trillion in calendar 2017 as soft interest rate kept private sector loan appetite high due to the expansions being undertaken by the industrial sector. Banking sector advances were reported at Rs5.57 trillion for the year 2016. The growth in advances came from higher economic growth due to multi-decade low interest rates and growth in large scale manufacturing for increasing capacity expansions. The central bank has kept its key policy rate unchanged at 5.75% since May 2016 to support growth. “The prospects of achieving 6% target of real GDP growth during the current financial year remains strong,” the State Bank of Pakistan said in its November monetary policy statement. The growth was recorded at a decade-high of 5.3% during the last fiscal year. Advances to deposit ratio (ADR) also improved to 53% for 2017 as compared to 50% for 2016.
According to the data released by Pakistan Automotive Manufacturers Association (PAMA), total auto sales slowdown during December 2017, with all passenger cars sales declining by 6%MoM. Amongst LCVs segment, only Hilux witnessed growth in sales, while sales for BR-V and Ravi declined by 40% and 13%MoM, respectively. Experts said the year-end factor led to the broad-based decline in sales on monthly basis. Sales for three OEMs were down, INDU posting 14% and HCAR posting 28%, whereas PSMC posted a meager growth of one percent. A against this, HCVs sales grew by 6%MoM, maintaining its strong momentum on the back of increased construction activities. However, sales for tractors declined by 11%MoM. Going forward, it is expected the sales would recover from January 2018 onwards due to New Year effect. On a cumulative basis, 1HFY18 numbers remained healthy for auto sector sales, with total sales growing by 27%YoY.
The Senate Standing Committee on Finance and Economic Affairs has advised National Bank of Pakistan (NBP) to promptly meet the financing requirements of sugar mills, as a delay in financing affects payment to sugarcane growers. The Senate body at a meeting was chaired by its chairman, Saleem Mandviwalla at the NBP head office. It reviewed the NBP’s financing facility in order to increase sugar mills’ sugarcane purchasing capacity. According to news Sindh High Court (SHC) has ordered owners of sugar mills to purchase sugarcane at the price of Rs172 per 40 kilograms till further orders. A two-member bench of the SHC issued orders in a case related to the fixation of sugarcane price and its purchase over a dispute between growers and sugar mills owners. The bench also ordered the Sindh government to notify sugarcane price after consulting the parties within one week. Sindh government was also directed to convene a meeting within two days with the parties including the growers, millers and the Cane Commissioner for arriving at a consensus. After the consultative meeting, the matter should be decided with the approval of the Provincial Cabinet and the Chief Minister and rates should be notified accordingly.