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Index remains up for 7th consecutive week, likely to resistance levels

During the week ended on 13th December 2019, the benchmark Index of Pakistan Stock Exchange (PSX) closed positively for a 7th consecutive week, gaining 184 points WoW or 0.5%, the was despite three negative sessions. During the week Index crossed 41,000 level before closing at 40,917 points, in doing the Index also reached the highest level in last 41 weeks. Based on NCCPL data, foreigners sold equities worth US$9.05 million. On the domestic front, Mutual Fund emerged buyer of US$7.6 million, but corporate remained seller to the tune of US$6.6 million. Top performers during the week included NCL, OGDC and PPL, while PSMC, PIOC and ASTL remained the worst performers. Average daily turnover declined 40.7%WoW to 275 million shares where UNITY, FFL, BOP, PAEL and KEL remained major volume churners.

The Executive Board meeting of International Monetary Fund (IMF), scheduled on 19th December 2019 is expected to be followed by release of US$450 million tranche. During the week, Pakistan also submitted a progress report to FATF, meanwhile indicting Hafiz Saeed for terror financing. FATF will raise questions on submitted compliance report of Pakistan till third week of December, followed by Pakistan’s formal response on 7th January 2020. Additionally, SECP approved regulation that would come into effect in 2020 under which trading at the stock market will be brought to a halt when KSE-30 index moves up or down by 4% in a single trading day. SECP also approved the increase in circuit breaker levels to 7.5% from existing 5%, laying out groundwork for the launch of Exchange Traded Funds (ETF) in 1QCY20.

Total liquid foreign exchange reserves held by Pakistan were reported at US$16,048.1 million on 6th December 2019. Reserves held by the State Bank of Pakistan (SBP) amounted to US$9,233.6 million and net reserves held by commercial banks were US$6,814.5 million. During the week under review, SBP made a repayment of Pakistan International Sukuk of US$1,000 million. As a result of inflows from multilateral and other lenders, reserves held by the central bank increased by US$121 million to US$9,233.6 million. On 9th December 2019, SBP received US$1,300 million from Asian Development Bank. These funds will be part of the SBP weekly reserves data as of 13th December-2019, to be released on 19th December 2019.

Other major news flow during the week included: 1) a 44% decline in Car sales in November 2019 as increased prices and exorbitant auto financing dampened the consumer sentiments, 2) workers’ remittances amounted to US$1.82 billion, 9.35% higher than the amount received in the corresponding month last year, 3) SBP’s imposed fine ABL, MCB, BOP and HBL, 4) yields on 3/5/10 year PIBs declined by 5/26/35 bps since last auction, 5) a 33% decline was witnessed in trade deficit to US$9.7 billion during first five months of the current financial year, 6) SBP allowed banks to make advance payment up to 50% of the value of imports against letter of credit for manufacturing concerns and 7) Swiss parliament approved exchange of bank data with Pakistan amid other countries from 2021.

 

After gaining 42% from its CYTD low, profit taking may keep the market range bound. However, continued build-up in foreign exchange reserves following IMF board meeting and encouraging developments on FATF compliance front could push market to test the resistance levels in the upcoming weeks.

Pakistan car sales continued to trend down; depicting a decline of 44% YoY in November 2019, taking cumulative attrition in 5MFY20 to 45% YoY. This decline is primarily attributable to 1) higher auto prices post rupee depreciation and 2) higher interest rates for auto financing. Indus Motors (INDU) reported second consecutive MoM increase in volumetric sales; up by 6%MoM mainly due to 10%MoM and 8%MoM increase in its Corolla and Fortuner variants, respectively. This increase in volumes was on the back of aggressive promotions, discounts and different waiver schemes offered by company in collaboration with commercial banks. However, INDU continues to report a decline on YoY basis; down by 52%YoY during the month under review.

Pak Suzuki (PSMC) recorded a 31%YoY decline, the decline in sales was led by Wagon-R and Cultus, down 70%YoY and 41% YoY respectively, Furthermore Alto has also depicted monthly decline of 27% YoY which is highest since its launch. Bolan and Ravi variants were down 58% and 56% YoY, respectively. Swift sales were also down by 42%YoY. Analysts expect recovery in car volumes beginning 2020, as auto volumes will likely bottom out in December 2019.

Honda Cars (HCAR) sales fell 62%YoY during, where combined sales of City and Civic fell by 66%YoY. However it recorded increase of 4%MoM. BR-V reported a decline of 24%YoY and 34%MoM.

Habib Bank (HBL) conducted Corporate Briefing session, to discuss its key focus and strategy going forward. Key theme for the Bank is focused on key real sectors with segments like Agri financing and SME finance. In 2020 the bank is expected to move away from one off costs and move towards a normalized cost to income ratio. Customer base is expected to cross 20 million in the coming year as compared to 16 million at present. Number of current accounts is targeted to cross one trillion rupees mark, keeping cost of deposit low. The banks’ focus is on innovation through technology. The Bank focuses on “STARS” strategy encompassing: 1) Sustaining Success, 2) Turnaround, 3) Acceleration, 4) Realignment and 5) Startups (emphasis on branchless banking and digital banking).

Key Initiatives of the banks are 1) branchless banking through Konnect aimed to capture a new market through smart phones, 2) Power sector prowess through various IB based transactions and 3) Launch of Panda bonds. China is where the bank plans to expand its network, where talks are in advanced stages of giving HBL rep office a branch status, additionally OBOR based countries are to be assisted by HBL where Chinese presence is limited.

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