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Fragile economic view keeps market under pressure as index down 1,700 points

Due to likely harsh conditions emanating from entering into yet another program with International Monetary Fund (IMF), the benchmark index of Pakistan Stock Exchange (PSX) lost about 1,700 points (down 4.36%WoW) during the week ended 12th October 2018. In the earlier week the index had lost 1,772 point due to the fragile economic outlook and the ongoing foreign sell-off. This made investors jittery and plunged the index to 37,518 points (119-week low). The selloff was driven by: 1) fragile economic outlook and rising interest rates as investors look for attractive yields in fixed income asset class and 2) the statement of IMF chief hinting towards stringent conditions for a bail-out package.

The average daily traded volumes at the bourse rose by 65.3%WoW to 187.5 million shares and the top volume leaders were: TRG, BOP, KEL, LOTCHEM and EPCL. Certain stocks are under risk of exclusion from MSCI’s EM index. Amongst Pakistan stocks in the MSCI EM Index, prices of LUCK and HBL declined the most, down by 11% and 8% respectively. Commercial banks and cements were the worst performing sectors during the week. Foreigners offloaded equities worth US$32.6 million (largest selling after 8 weeks) as compared to net selling of US$8.4 million a week ago. On local front, Companies, Insurance and Banks emerged major buyers.

Major news highlights during the week were: 1) Government of Pakistan formally announcing its intention to approach IMF, with the latter demanding transparency over Pakistan’s external debts including those owed to China, 2) Asian Development Bank announcing US$7.1 billion financial package for Pakistan spread over a three year period, 3) State Bank of Pakistan in its latest data revealing that country’s trade deficit narrowed by 1.8%YoY to US$8.9 billion during first quarter of the current financial year, 4) delegation of the Asia Pacific Group asking Pakistan to do more in order to get out of the grey list of FATF and 5) Prime Minister Imran Khan launching ‘Naya Pakistan Housing Program’ aimed at building five million low-cost housing units across the country.

While the major gainers were: KEL, ASTL, OGDC and PTC; the laggards included: PSMC, CHCC, MLCF, INDU and FATIMA.

Testing new lows, medium term performance for the market would continue to revolve around macro-level policy initiatives of the Government of Pakistan, especially developments regarding IMF program. Moreover, market will continue to take direction from the ongoing results season where major companies scheduled to announce their financial results next week include CHCC, EFOODS, EFERT, ENGRO, UBL, BAHL and MARI.

Reportedly foreign exchange reserves State Bank of Pakistan decreased by US$101 million to US$8.3 billion due to external debt servicing and other official payments. According to SBP’s weekly report, the total liquid foreign exchange reserves held by the country were reported at US$15 billion as on 5th October 2018. Out of these reserves held by commercial banks were reported at US$6.5 billion.

The monthly automobile industry data shows a mixed trend. Total number of units sold was 19,934, posting an increase of 8%MoM and 2%YoY. Out of there the largest number pertained to passenger cars (16,957) and LCVs (2,388). In the passenger car segment, total sales of 16,957 consist of 3,539 units of 800CCa and below segment, 4,455 belonging to 1,000CC segment and 8,963 units of 1300CC and above segment. Cumulative 9MCY18 total industry sales of 200,234 units, up 9.3%YoY pushed by passenger car sales to 164,575 units.


Company wise units sold were: HCAR 40,168 units, PSMC 104,324 units and INDU 48,353 units. This signifies an important trend, flattening of sales growth in the price sensitive 800cc and below segment coupled with recent Pak Rupee weakness against the greenback, forcing OEMs to further round of price hikes.

Cement industry of Pakistan has been under severe pressure lately. Already suffering from supply glut and higher input cost pressures, cement industry is fighting ‘war of fundamentals’ on multiple fronts, where repercussions of the upcoming IMF program (aggressive monetary tightening and currency devaluation) could further dampen sector’s profitability going forward. According to an AKD Securities report, valuation of its cement universe (ex-LUCK) has shrunk by an average 44% while earnings declined range from 23 to 45 percent. Currency depreciation may improve competitiveness of Pakistani cement in the export market, countering potential slowdown in local demand. In light of the worst case scenario outcome under prevailing market situation, further correction in the sector cannot be ruled out. Therefore, investors are advised to follow a cautious stance on the sector in the medium ter.

National Refinery Limited (NRL) announced its 1QFY19 results, posting LPS of Rs13.33 as against EPS of Rs21.26 for the corresponding period last year. This was primarily due to the hike in financial cost and cost of sales, despite 38%YoY rise in sales.

Attock Refinery (ATRL) posted its 1QFY19 results recording LPS of Rs6.82, down from the previous year’s EPS of Rs7.11. The advantage of increase in sales by 62%YoY was lost due to a 67%YoY rise in financial costs and a 73%YoY hike in cost of sales.

Attock Petroleum Limited (APL) released its 1QFY19 results with an EPS of Rs15.55, up 16%YoY. Even though other expenses increased by 26%YoY and other income fell 16%YoY, a significant increase in sales by 50%YoY boosted earnings for the company in the outgoing quarter.

Engro Polymer & Chemicals Limited (EPCL) announced its 3Q2018 results disclosing EPS of Rs1.2, up 20%YoY. Better earnings are a result of 1) substantial increase in other income 2) decrease in finance cost of 21% YoY and 3) increase in net sales of 15% YoY.

Attock Cement Pakistan Limited (ACPL) released results for 1QFY19, posting EPS of Rs3.4 as compared to an EPS of Rs4.4 for the same period last year. This decline can be attributed to decrease in gross margins, increase in financial cost and distribution expenses.

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