over CVT continued for the next two days and eroded the benchmark
index by another 1%. Friday was another interesting day with the index
shown extreme volatility by showing a movement of positive 27 and
negative 97 points. Though reduced by nearly 90%, the imposition of
CVT disturbed the speculators interest in the market while long terms
players remained on sidelines owing to fears of a possible backlash
from the militants on Wana operations.
OUTLOOK FOR THE FUTURE
CVT issue is likely to be resolved during the next
week. However, this will increase the transactional costs of the
speculators resulting in relatively lower trading volumes. Thus the
market sentiment is likely to stay negative in the very short term. On
the other hand, political risk is also likely to increase in the short
term owing to two factors: (I)
uncertainties attached with PM Jamali, and (II)
a possible backlash from the tribal warriors on killing of their leader
at the hands of Pakistani army. The interest rate outlook is also likely
to come under question as SBP may try once again to convert its
short-term liabilities into long term PIBs. Moreover, the usual year-end
factor will also affect investor sentiment negatively. On an overall
basis, the continuation of neutral to negative consolidation in the
market is likely next week.
The major developments this week were:
•According to an official of the Privatization
Commission, the bidding for KESC is planned in September.
•The Karachi Stock Exchange has reportedly received
the listing application of Pakistan Petroleum Limited.
•Pakistan will touch the US$1bn mark in Foreign
Direct Investment during the current year. This landmark has been made
possible on account of the proceeds received against the privatization
of Habib Bank Limited and sale of two cellular licenses during the
•As per figures released by the Federal Bureau of
Statistics, inflation in the first eleven months of the year rose by
4.2%, on the back of the 7.1% YoY rise in inflation during May.
•Reportedly, deposits in the National Savings
Schemes dropped by 92% YoY in the first 9 months of the current fiscal
year to PkR5.7bn against deposits of PkR74bn reported during the same
period last year.
•Reportedly, in a meeting between the Finance
Minister and other members of the Ministerial Committee, the auto
dealers and the assemblers held a few days before the Budget
presentation, the assemblers were asked to reduce their booking advance
from 100% to 10%, to reduce the delivery period and to reduce their
•As per a statement released by Standard &
Poor, the international credit rating agency, Budget '05 marks a shift
in Pakistan's fiscal policy away from purely deficit and public debt
reduction towards growth.
•Oman has banned the export of cement to the UAE.
If Oman continues with the ban for a long period, UAE contractors will
be forced to import cement from other countries like India, Pakistan,
Saudi Arabia and Egypt.
•The government is making CBR's June target even
more difficult as it has allowed the business community to take
advantage of tax withdrawals effective June 12th.
•For the third consecutive fortnight in a row,
prices of domestic oil prices have remain unchanged.
•ICI Pakistan has announced that it will be seeking
shareholders' approval to sell its stake in Pakistan PTA.
•The State Bank mopped up PkR55.7bn from the market
yesterday through a one-week repo sale of Treasury Bills at 1 percent.
•Reportedly, in the first 11 months (July-May) of
the current fiscal year, net remittances from overseas Pakistanis
reached US$3.473bn, 6% YoY lower than the US$3.704bn received during the
same period last year.
•As per the Chairman ABAD, incentives announced by
the government in the Federal Budget to boost up construction activity
in the country are unlikely to give real flip to the construction
•Under the revised arrangements, the CVT rate has
been lowered to 0.01% whereas three more levies have been introduced:
(I) 0.005% WT on the purchase value of the shares, (II) 0.005% on the
sale value of the shares and (III) 10% WT on COT.
•According to an official of the Privatization
Commission, the IPO of Pakistan Petroleum Limited is likely to be held
•Pakistan PTA Limited (PPTA) has announced that it
will be redeeming all its issued Term Finance Certificates (TFCs) on 2
•As per the projections, the government is
projecting growth of 10.2% in the manufacturing sector in the next
fiscal year on the back of 12% projected growth in large scale
manufacturing and 7.5% growth in small and medium enterprises.
FERTILIZER — LATEST DEVELOPMENTS
There are at least four developments that we will be
discussing in this week's article. First, the NFDC released its latest
numbers where both types of fertilizers, urea and DAP, have shown drop
in offtake, which we feel has more to do with early purchases of the
dealers on the back of a possible price increase in June. Second, the
fertilizer manufacturers have raised their product prices to partially
absorb the gas price increase likely to hit the sector in July. Third,
the presidential package for the agriculture sector is likely to provide
a long-term bull story for the manufacturers owing to massive credit
allocations for the farmers under this package. Fourth, the possible
review of the fertilizer policy will provide some relief to the players
who would show aggression at this point in time to expand their
capacity. Our top pick in the sector will remain FFC while Engro will
remain a market equivalent performer. We do not like Fauji Bin Qasim.
NDFC RELEASED DATA FOR LAST MONTH
A 14.7% decline was observed in total nutrient
offtake during May 2004. Nitrogen offtake went down by 17.1 per cent,
while phosphate offtake increased marginally by 0.9 per cent. Urea
offtake was 314 thousand tonnes, which decreased by 17.6 per cent and
DAP offtake was 32 thousand tonnes, which went down by 8.7 percent.
Product-wise, urea went down by 17.6 percent and DAP offtake decreased
by 8.7 percent. There are two reasons attached to this declining trend: (I)
The dealers have accumulated substantial inventories in April owing to
the fear of a possible price hike in May/June; (II)
Some of the experts are also blaming water shortage for this fall in
offtake. The centre is further highlighting the fact that DAP offtake
will remain depressed in June as the farmers would wait for the
implementation of PkR100 per bag Presidential subsidy. On urea the
centre is very comfortable in terms of short term demand supply
situation whereas it is forecasting a gap towards the end of CY04 which
may force the government to initiate some urea imports. Manufacturers
came up with a price hike.
There were two attempts from the manufacturers to
absorb the forthcoming gas price hike. First was in March/April and the
second was in the beginning of the current month. On both occasions, the
manufacturers came up with small price hikes (within the range of 1%) to
absorb the gas price hike. We are of the view that both these price
increases would help the manufacturers to partially absorb the cost
increase whereas these companies will also be taking some minor hit on
their margins. Interestingly the political government has not come up
with any reaction to these price hikes. And it appears that farmers will
also accept this owing to the optimism attached with the increased
credit allocation for agriculture. The price increases are in line with
our price expectations for CY04 and we stick to our existing company
PRESIDENTIAL AGRICULTURE PACKAGE POLICY
Just before the federal budget FY05, the President
has also come up with a comprehensive agriculture package. The
announcement has two objectives; firstly, to revive the agriculture
sector which has failed to contribute its due share in the recent
economic recovery; and secondly, President Musharraf wants to earn some
political gains by facilitating the largest community of the country.
The package is likely to boost agricultural growth in the years to come.
Cheaper loans along with a reduction in the import duties on tractors
bode well for the government's efforts to improve the mechanization
level in the sector. The package also offers a direct subsidy of PkR100
per bag on DAP fertilizer to improve the balanced fertilization in the
country. While we like higher credit allocations for the agriculture
sector owing to its direct positive impact on the productivity of the
farmers, we are not in favor of the government offering a direct subsidy
to the farmers on fertilizer, rather an increase in support prices can
help farmers in absorbing this cost.
OF FERTILIZER POLICY
The President has also announced to review the
fertilizer policy with an objective of making its more attractive for
the investors to take initiatives to invest in the capacities. We
believe that this is a step in the wrong direction. Agreed, the current
fertilizer policy includes very little incentive for the existing
players to expand their production capacities and any government effort
to create attractions in the sector via playing with gas prices is
likely to create problems for the government in other sectors as well.
The government has already seen the negative implications for the gas
sector owing to subsidized gas prices under the previous policy.
However, we feel that those players who show aggression at this point in
time to expand their capacity will gain substantially.
Mkt. Cap (US $ bn)
Avg. Dly T/O (mn. shares)
Avg. Dly T/O (US$ mn.)
No. of Trading Sessions
KSE 100 Index
KSE ALL Share Index