Home / This Week / Market / Stock Review

Stock Review

Sentiment leans to favor bears over delay in IMF talks and funding from ‘friendly countries’

Pakistan equity market remained under pressure due to inconclusive meeting with International Monetary Fund (IMF) and delay in funds transfer from Saudi Arabia. The benchmark index of Pakistan Stock Exchange declined by almost 2.00%WoW for the week ended 23rd November 2018 at 40,869 points. With the first round of negotiations between the IMF and Pakistani authorities being inconclusive over fundamental differences on measures to address fiscal imbalances, and Government of Pakistan (GoP) expectations of funding from ‘friendly countries’ failing to materialize, sentiment leaned to favor the bears.

Key news flows during the week were: 1) IMF-viewed policy uncertainty and economic imbalances as risks to growth saying that its growth forecasts would slide to 4% in the current fiscal year from a decade-high of 5.8% for the last financial year, 2) Pakistan could face a tough time in the coming years as the delegation of Asia Pacific Group (APG) — a subsidiary of Financial Action Task Force (FATF) during its recent visit rated Pakistan partially/non-compliant in 33 out of 40 recommendations and 3) Prime Minister Imran Khan on Monday led a sharp reaction by political leaders to US President Donald Trump’s tirade against Pakistan by hinting at review of foreign policy options.

The major gainers for the week were CHCC, LUCK and PIOC and the laggards were POL, HBL and DGKC. Volume leaders during the week included LOTCHEM, EPCL, NRSL and PAEL. FIPI outflows reached US$11.6 million, taking MTD outflows to US$48.8 million, marking a continuation of a multi-year high outflows from the Pakistan equity market.

As IMF negotiations get delayed, investor expectations of foreign exchange reserve funding from China, Saudi Arabia would deliver some welcomed relief. Additionally, expectations of monetary tightening should start factoring into sentiments surrounding commercial banks as Monetary Policy announcement date gets closer, scheduled for 1st December 2018. Lastly, the end to the trading year could give rise to calendar-end window dressing, where institutional inflows accelerate in a bid to close books on a promising note.

Fiscal deficit in the first quarter of FY19 widened to 1.4%. Fiscal deficit in July to September 2018 amounted to Rs541 billion. Fiscal deficit in July to September 2017 amounted to Rs440 billion. Principle and interest payment amounted to Rs507 billion. Principle and interest payment last year was Rs445 billion. Defense expenditure amounted to Rs219 billion during July to September 2018. Defense expenses during July to September 2017 totaled Rs182 billion. Total revenue and expenses July- September 2018 was Rs1.1 trillion and Rs1.6 trillion respectively.


Pakistan Refinery Limited (PRL) announced its 1QFY19 results, posting LPS of Rs1.4 as compared to an EPS of Rs1.1 for the same period last year. The loss is due to a 400 basis points YoY decrease in gross profit margins, an 89%YoY hike in finance costs and a 12%YoY increase in distribution costs.

Total automotive industry sales grew to 25,508 units during October 2018, posting 28%MoM/+6%YoY increase. The aggregate 10MCY18 sales rose to 225,742 units (+9%YoY), where constituents of total industry sales moved +10%/-11%/-10%/+0%/+9%MoM for Passenger Cars/ LCVs/Trucks/Buses/Tractors. Passenger car sales neared a high-watermark of 21,342 units (21,540 units were sold in May 2018) owing to a significant strength witnessed in the 800-1000CC segment (up 40%MoM). Cumulative 10MCY18 sales-growth of 9%YoY was an offshoot of Passenger Car/LCVs/Trucks growing 9%/8%/3%YoY, standing in contrast to 4MFY19 sales of +4%/-23%/-1%YoY, confirming sanguine outlook for passenger car sales, despite dampeners emerging for total industry demand outlook (non-filer ban, rising cost pressures, inflation and oil price spike). Additionally, for the outgoing month PSMC/INDU/HCAR exceeded nameplate monthly capacities operating at 107/154/120% of monthly double-shift capacity taking 10MCY17 utilization levels to 94%/131%/108% as compared to 86/124/95%. Notification of limited cost pass-on of some OEM variants indicate their capacity to absorb cost escalations (PkR eroded by 6.6% during October 2018 alone), in a bid to encourage off-season buyers.

Pakistan fertilizer sector fundamentals remained strong evident from strong earnings growth of 73%YoY and 56%YoY in 3QCY18 and 9MCY18, respectively. Impressive earnings performance emanated from: 1) substantial increase in urea offtake, and 2) urea prices (up 24%/13%YoY), and 3) consequent recovery in primary margins. In this regard, FFBL led the board, followed by 82%YoY and 80%YoY growth in EFERT and FFC bottom-line respectively. At the same time, FATIMA posted a relatively lower earnings growth of 30%YoY in the latest quarter. Going forward, analysts anticipate better results in the last quarter of CY18 on the back of: 1) upward trend in local product prices, 2) higher offtake in Rabi season and 3) swift pass on of recent gas price hike. In this backdrop, fertilizer sector has gained 19.6%CYTD, outperforming the PSX benchmark index by 17.3% during CY18.

October 2018 total POL industry sales volume of 1.65million tons (down 32%YoY/6%MoM) reported by OCAC were lower due to a monthly dip in FO/MOGAS sales volumes (down 19%/8%MoM), while a minor recovery in HSD sales. On a cumulative basis, total industry sales of 17.65 million tones (down 21%YoY) were depressed not only due to lower FO, but also HSD, where slow growth in MOGAS failed to stem declines. For listed players, total product volumes fell on YoY as well as QoQ basis, while cumulative 10MCY18 volumetric shifts for PSO/APL/SHEL/HASCOL, jolting market shares for October 2018.

Analyzing the latest quarterly results for PSO, HASCOL and SHEL, analysts find a deteriorating free-cash flow situation with outflows from networking capital and additional borrowing underpin a relatively weak earnings quality picture. In this backdrop, APL remains well-entrenched in the retail sphere, focusing on highways and major storage expansions, while maintaining an unleveraged balance sheet with cash and ST investments at Rs9.54billion, immune from rate hikes and offering competitive yields.

Check Also

World Stock Markets updates

Global Stock Exchanges

STOCK EXCHANGES AROUND THE WORLD Pakistan stocks dragged down by heavy rupee depreciation The stock …

Leave a Reply