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Stocks remain cool as political uncertainty likely to persist

Political uncertainty, along with unabated foreign selling (US$28 million so far during February) dampened investors’ confidence. During the week ended 16th February 2018, the benchmark index of Pakistan Stock Exchange (PSX) lost 182 points or 0.41%WoW to close at 43,627 points.

Average daily traded volume dropped by 18.8%WoW to 198.77 million shares. The volume leaders of the week were: ANL, TRG, LOTCHEM, FFL and KEL. Sector wise, commercial banks gained 2.5%WoW, while pharmaceutical sector lost 4.1%WoW on account of Supreme Court taking notice of Sindh High Court’s stay order. Other key news flows impacting the market included: 1) trade deficit widening to US$21.54 billion at end of first seven months of the current financial year, 2) auto sector registering 12.8%YoY growth during January, with industry sale reaching all-time high of 24,500 units and 4) foreign reserves falling by US$215 million to US$18.96 billion during the week ended 9th February 2018. Performance wise, major gainers of the week were: HBL, UBL, ABL, and PPL, while laggards included: MLCF, DGKC, NCL, PTC and FCCL.

Analysts expect the market participants to remain cautious ahead of the Financial Action Task Force (FATF) meeting scheduled on 18 to 23 of this month to decide Pakistan’s inclusion in the gray list. Additionally, political noise can escalate as the deadline to decide on corruption references against Sharif family draws closer. The key result announcements scheduled for next week are Banking (UBL, NBP, ABL), Cement (FCCL, DGKC, BWCL), Oil and Gas (OGDC, MARI and PPL), and Power (HUBC, NPL, KAPCO) that can keep the specific scrips in the limelight.

Pakistan seems to be inching closure to serious balance of payment crisis due to persistent decline in its foreign exchange reserves. During the week ended 9th February 2018, foreign exchange reserves held by State Bank of Pakistan (SBP) declined by US$227 million to US$12,834 million due to external debt servicing and other official payments. As a result total liquid foreign reserves held by the country also reduced to US$18,968.1 million. The reserves held by commercial banks were reported at US$6,134.2 million. Even bigger problem is that despite having firm commitments of roughly US$26 billion, Pakistan is not likely to get any major injection from traditional lenders in the next four months, restricting its options and pushing it to rely on foreign commercial loans and flotation of Eurobonds to meet pressing external financing needs.

Aamir Fayyaz, Chairman, All Pakistan Textile Mills Association (APTMA) has demanded a uniform energy price of Rs600 per mmbtu to revive US$4 billion closed capacity in Punjab besides attracting new investment in the sector to generate billions of dollars exportable surplus. “Unless the government ensures an immediate restoration of the viability, the textile industry would be unable to compete and deliver for the economy,” he stressed. He deplored that the government was not proactive in controlling the energy price for the industry, which becomes 35 percent of the conversion cost. Particularly, the Punjab-based textile industry’s viability is being hit hard due to the energy cost.

 

The bank advances continued robust growth during January 2018. According to the latest data released by SBP, gross advances of scheduled banks increased by 20%YoY to reach Rs6.56 trillion during first month of the calendar year (CY18). The rise can be attributed to ongoing project financing, especially related to power and infrastructure projects and consistent demand of consumer products. As a result, credit penetration in Pakistan increased to 18% of GDP as compared to 16% reported for the corresponding period last year.

Having hit record monthly vehicle sale of 24,500 units during January 2018 (up 22.8%MoM/12.85% YoY), the auto demand appears strong. The total passenger car sales rose to 19,924 units, while LCV sales surged to 3,638 units (up 18% MoM/38.4%YoY), pushing 7MFY18 sales to 153,200 units (up 10.2%YoY). PSMC posted highest monthly volumetric sales, indicating heavy corporate reliance on the brand for their fleets. Also, production figures point to an acceleration in capacity utilization and OEMs proceeding with production on variants that were undergoing facelifts/upgrades, lowering demand pre-launch. Analysts are closely assessing new models, price points and indications of demand, looking to revise their forecast accordingly.

The capacity utilization of the cement industry exceeded 91.28%. It has been termed the highest since 2004-05 when the utilization was reported at 99.11%. Industry experts are optimistic that the sector is quite hopeful that the present growth momentum in cement sector will continue and absorb the upcoming production capacities of around 15 million tons in next three to four years. According to the data released by All Pakistan Cement Manufacturers’ Association (APCMA), out of total cement dispatches of 4.084 million tons in January, the domestic consumption was 3.737 million tons.

In a major policy decision, the federal government has decided to allow import of three-year old used cars in accordance with previous policy on the demand of importers. This was confirmed by the Advisor to Prime Minister on Finance, Revenue and Economic Affairs, Dr. Miftah Ismail. According to recent data, imports of used cars and minivans surged to 65,723 units in 2017, up almost 70% from 38,676 units a year ago.

Pakistan’s only integrated utility supplying electricity to Karachi, K-Electric plans to invest Rs335 billion in power generation, transmission and distribution sectors within the next five years. The Company has already invested more than US$1.4 billion, which helped in improve generation, transmission and distribution network.

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