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Amnesty, ITFC lending rejoice will be short lived; investors eye budget proposals

Pakistan seems to be inching towards serious balance of payment crisis. The ruling junta has failed in containing import of luxury goods (most of the members of Senate, National and Provincial Assemblies are feudal lords and business tycoons) and has hardly any realization of the level of gravity. Despite indiscriminate borrowing, foreign reserves of the country are on the decline. Bad policies have rendered exporters uncompetitive in the global markets. Remittances are also proving paltry because of dismal exports. According to the data released by State Bank of Pakistan (SBP) during the week ended 30th March 2018, country’s foreign exchange reserves decreased by US$174 million to US$17,796 million, due to external debt servicing and other official payments. The reserves held by SBP were reported at US$11,602 million and reserves held by commercial banks amounted to US$6,194 million.

Rejoicing over the amnesty scheme and announcement of US$3.285billion to be lent by International Trade Finance Corporation, the week ended 6th April 2018, the benchmark index of Pakistan Stock Exchange witnessed increase of 1,078 points or 2.36% WoW. Investors largely ignored concerns raised by the Parliamentary Committee over the recent delimitation exercise which could potentially lead to a delay in elections. Central bank’s decision to leave the policy rate unchanged hit the banking sector, but incited rally in the sectors pursuing expansion,mainly cement and steel. Further support was provided by the news of cement price hike, while possible removal of Regulatory Duties on steel marred the show later in the week.

Average daily traded volume went up by 8.19%WoW to 259.37million shares. The top volume leaders were EPCL, LOTCHEM, FCCL, KEL and NRSL. Major news highlights driving the market included: 1) central bank’s decision to maintain policy rate, 2) annual consumer price inflation reported at 3.2%YoY, 3) commerce division considering further reduction in custom duties on raw materials and removing Regulatory Duties on 57 tariff lines, 4) SECP proposing a flat rate of 15% and 20% CGT for filers and non-filers respectively for holding period of up to 3 years and Pakistan Banks’ Association pushing to abolish the super tax and 5) foreign reserves declining to US$17,796 million at end March’18.

Major gainers included: MLCF, POL, FCCL, 4) INDU and APL, while laggards were led by FATIMA, KEL, ASTL, and KAPCO. Foreigners continued their buying spree with US$3.62million inflows during this past week as compared to US$1.91million a week ago. Having registered an initial upward momentum, market is likely to take further clues from the reactions over amnesty scheme. Moreover, progress on the hearings of objections on delimitation exercise will be closely watched. Investors are likely to keep an eye on proposals relating to the upcoming budget.


Reportedly cement dispatches during March’18 touched a monthly high of 4.30million tons; the previous high was 4.08million tons in January’18. Higher offtake was led by record high domestic dispatches of 3.95million tons in March’18 as compared to the previous high of 3.78million tons in October’17. Exports also increased during the month under review to 0.35million tons. On a cumulative basis, total dispatches growth was recorded at 13.5%YoY for 9MFY18 led by domestic dispatch growing by 16.8%YoY.

With the general elections drawing close, analysts anticipate dispatches growth to remain robust for the remaining three month of the current financial year. This optimism in based on: 1) strong PSDP and provincial spending in 2HFY18 ahead of general elections and 2) impressive growth in private sector credit related to construction activity. The risk of pricing indiscipline is likely to increase with each expansion particularly in the Southern region. Domestic dispatches continues upward trend. According to provisional statistics, domestic dispatches recorded another milestone reaching a monthly peak of 3.95million tons as the manufacturers located in the Northern region were able post higher growth of over 18%YoY during 9MFY18 as compared to the Southern region posting growth of less than 11%YoY during 9MFY18.

Companies outperforming the industry average during 9MFY18 were CHCC and MLCF, while LUCK, ACPL, DGKC and PIOC also posted impressive double digit growth during 9MFY18. Exports growth was continuation of last month performance as aggregate exportsin March’18 rose to 0.35million tons, an increase of 65.2%YoY/16.4%MoM. However, on an overall basis, exports were still down 9.3%YoY in 9MFY18 as compared to 14.8%YoY decline in 9MFY17. Going forward, analysts expect exports to remain under pressure due to worsening relation with the neighboring countries, Afghanistan and India. Besides, rising fuel prices/other input costs and import/anti-dumping duties also makes it more challenging for local manufactures to boost exports.

Total POL product volume offtake for March’18 was 1.78million tons, was up 23%MoM but down 11%YoY. Furnace Oil (FO) sales, down by 46%YoY remained the major dampener to over-all volumes. Uptick in retail fuel sales continued to remain a recurring theme where HSD and MS volumes posted significant growth. On a cumulative basis 9MFY18 total industry volume was reported at 18.22million tons, down 4%YoY where the declines in FO sales was 20%YoY. A look at seasonality identifies the April-July summer season as a boon for the sector, where an early Ramazan, warmer weather outlook, looser COD timelines for new power projects could raise FO demand yet again. Rooted in these catalysts, accompanied by positive news flow on circular debt clearance (where any clearance, even a partial one benefits PSO the most).

As regards performance of market players, SHEL/PSO/APL weathered volumetric shifts, while HASCOL continued to grow at 36%YoY during 9MFY18. MOGAS remained a brightspot for domestic OMCS where HASCOL/APL/PSO witnessed increase in volumes, providing credence to retail-led growth and associated CAPEX strategies.

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