day with another 0.88% gain owing to indications that
the SBP wants to keep interest rates low. Trading volume remained low on
Thursday, primarily due to funds stuck up in PPL subscriptions. Friday
was positive but the market continued to move in a narrow band. On the
whole, the index gained 1.01 percent WoW and closed at 5,343.52 on
Friday as opposed to 5,290.04 in the previous week.
OUTLOOK FOR THE FUTURE
Trading volumes are likely to pick up after the
allocation of PPL shares to investors during the next week. Meanwhile,
the unsuccessful retail investors will reposition their investment
portfolios after getting their stuck up funds in the PPL subscription
back towards the end of next week. No corporate results are expected
during the next week so there won't be any stock specific movements. The
SBP will likely remain active by mopping up extra liquidity from the
money market in order to protect the rupee. We also expect that the Pak
Rupee's movement against the US Dollar will eventually normalize, though
we expect some speculative funds to move from equities into the currency
market. On the political side, we expect the current volatile situation
to continue where the government will be able to control the situations
in Wana and Balochistan though at the expense of further unrest among
the general public. Any breakthrough on Siachin during the ongoing
India-Pakistan talks can change market sentiment significantly.
The major developments this week were:
•OCAC maintained the existing prices for all POL
products for the next fortnight as well.
•PC received 755,000 applications for PPL. The
balloting took place on the 4th of this month and the stuck up money is
likely to be released by next weekend.
•Shaukat Aziz survived an attempt on his life while
7 died and 70 were hurt after a public meeting at Jaffar village near
•As per provisional results, the CBR collected
PkR28.6bn in levies during July. This amount represents a jump of 22%
over the PkR23.4bn that was collected during July last year.
•The Hub Power Company Limited has informed the
Karachi Stock Exchange that it will be announcing its FY04 annual
results in September.
•The State Bank announced its plan of auctioning
PkR3bn worth of PIBs on 17 August. The Bank intends to auction PkR1bn
each for 3, 5 and 10 year PIBs. The coupon rates for these issues will
be 6 percent, 7 percent and 8 percent respectively.
•As per a source, the federal government is
considering applying a 5-year ban on the transfer of vehicles imported
under the gift, baggage and transfer of residence schemes.
•The government has asked fertilizer manufacturers
to submit price stability proposals within 10 days.
•Oil prices crossed the US$44/bbl mark on Tuesday.
Fears of supply disruption, rising demand, and inability of oil
producers to pump more oil are some of the factors that continue to
drive oil prices to their new highs.
•The National Accountability Bureau has decided to
investigate the financial position of the four local auto assemblers.
•European Commission has decided on its own to
initiate a partial interim review of the 13.1 percent antidumping duty
imposed on Pakistani bedlinen imports.
•The State Bank accepted bids worth PkR51bn against
a target amount of PkR60bn in Wednesday's Tbill auction.
•The Minister for Petroleum and Natural Resources
has said in a recent statement that Pakistan will be finalizing one of
the options for a gas pipeline by the end of the current calendar year.
•The Minister for Privatization in a recent
statement indicated that the Privatization Commission will be finalizing
the price of the Global Depository Receipts (GDR) for the Oil & Gas
Development Company Limited (OGDCL) in the next two to three weeks.
•The Rupee continued its fall against the US dollar
on Thursday when it lost 13-paisa to close at PkR58.92 on the back of
heavy forward buying of US dollars by importers and debt payments by
•Exports for Jul-04 were recorded at US$1183mn,
rising by almost 33% over Jul-03. At the same time, however, imports
rose by almost 37% YoY to US$1372mn in Jul-04. As a result, the trade
deficit shot up by 73% to US$189mn.
•UBL is planning a public offering of a PkR500mn
worth of Term Finance Certificates (TFC) on August 9 and 10.
•The State Bank carried out an OMO on Thursday and
mopped up PkR54.7bn in the process.
RUPEE DEPRECIATION — SECTORAL IMPACTS
We are reproducing our July 13, 2004 top story over
here. This story covers the sectoral impacts of the rupee's
depreciation. On a net basis, we believe that all the index heavyweight
sectors are likely to benefit from a weaker rupee. Our top picks in a
weaker rupee scenario are Pakistan Telecom and Pakistan Oilfields. Hubco
is another stock, which will get positive impact from a strong dollar.
A weak rupee means a positive outlook for PTCL. About
1/4 of company's revenue is dollar based and PTCL will show improvement
in rupee terms in case of rupee depreciation. In our existing PTCL
model, we are assuming 3-5% devaluation for next FY. Our target fair
value for the stock is PkR50 per share. At present, the stock is under
review owing to recent changes in the telecom sector.
There will be no direct impact on the urea fertilizer
sector as local prices have very little to do with international urea
prices. However, some impact will come through (I) a relatively higher
increase in fuel stock prices in line with RFO prices and (II) the
capital expenditure of the urea manufacturers will increase in case of
rupee devaluation. As far as DAP fertilizer is concerned, the
manufacturers are likely to pass on the entire price increase to
end-users. We maintain our liking for Fauji Fertilizer.
The auto sector is directly affected by exchange
rates primarily because vehicles are assembled locally from Completely
Knocked Down (CKD) kits that are imported from the Far East. The
assemblers have to then make payments in the relevant foreign currencies
to their suppliers. However, under the State Bank's regulations, the
payments have to be converted from rupee first to US dollar and then to
the third currency. Therefore, in a situation where the rupee is
depreciating against the US dollar, as is expected, the assemblers'
variable costs will rise, thus putting pressure on their margins. This
effect will be multiplied, if the US dollar also happens to be
depreciating against the third currency.
OIL & GAS
The entire oil chain industry is likely to benefit
positively from the rising trend in the Pak Rupee-US Dollar parity. With
oil prices denominated in US Dollars, upstream oil and gas companies
would see their rupee margins increasing even if crude prices remain
stable. The refineries and oil marketing companies are also likely to
see positive impacts owing to their return being calculated as a
percentage of the selling price. Gas utilities on the other hand remain
unaffected as their return is being calculated as a percentage of their
net operating assets. Thus, any increase in wellhead gas prices will
translate in to higher gas tariffs.
INDEPENDENT POWER PRODUCERS
Independent Power Producers (IPPs) are widely
recognized as a dollar bull industry. With tariffs denominated in US
Dollars, IPPs will be positively affected by any increase in the Pak
Rupee-US Dollar Parity. However, most of the IPPs have dollar
denominated debts. Those companies that are regularly obtaining forward
cover on their foreign exchange cover will not see any negative impacts.
On the other hand, IPPs with unhedged dollar denominated debt would see
their Pak Rupee converted interest costs rising.
An appreciation in the dollar is likely to have a
two-pronged impact on the textile sector through (1)
an increase in sales and (2)
a rise in the cost of importing machinery. A stronger dollar
will result in a higher rupee value of sales by manufacturers. This, in
turn, should translate into greater margins for the industry. On the
other hand, a rise in the dollar is also likely to raise the cost of BMR
and expansion being carried out by textile companies. Overall, increase
in sales should offset the rise in capital expenditure. A strengthening
of the dollar thus bodes well for the textile sector.
The strengthening of the dollar is likely to lead to
an increase in the dollar deposits at banks, with a simultaneous
decrease in rupee deposits. In case this shift takes place at a drastic
pace, banks could face problems in expanding their consumer finance
offerings. Banks will also be forced to offer new dollar based saving
schemes to attract investors. Last, but not the least, a rising dollar
is likely to lead to higher "Income from Dealing in Foreign
Currencies" for the sector. Consequently, the net impact on the
banking sector of an appreciation in the dollar will depend on the pace
of its rise. While a slow rise should result in higher Other Income for
banks, a sharp move towards dollarization could disrupt ongoing
developments in the sector.
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