Home / This Week / Market / Stock Review

Stock Review

Bears rule and market will be range-bound on ambiguity of external funding

The benchmark index of Pakistan Stock Exchange (PSX) lost another 373 points during the week ended 30th November 2018 to close at 40,496, down 0.91%WoW. Lack of clarity on external funding amidst foreign selling post MSCI rebalancing kept the market under pressure. Market activity remained lackluster with average daily turnover declining to about 152 million shares, down 3.1% WoW.

Key news flows impacting the market during the week included: 1) rupee losing another 2.5% against dollar, with PKR/US$ parity settling at Rs136.75 after touching intra-day high of Rs143, 2) Pakistan’s total foreign exchange reserves surging 6.24%WoW to US$14.57 billion during the week ended 23rd November 2018, with reserves held by the central bank increasing by US$776million to US$8.06billion, 3) the Government of Pakistan (GoP) deciding to raise up to Rs200billion to bail out the country’s ever-bleeding power sector by pledging major assets of the distribution and generation companies, 4) Country’s fiscal deficit rising to 1.4% of GDP or Rs542billion in 1QFY19, as compared to 1.2% or Rs441billion during the same period last year and 5) NEPRA withholding countrywide applicability of Rs1.27 per unit increase in uniform electricity tariff, citing legal grounds.

Performance wise, top gainers were EFOODS, PPL, MCB, OGDC, and HBL,while losers included CHCC, ASTL, PIOC, FCCL and LUCK. Policy rate hike (150bps) and rupee depreciation (2.5%) mark continuation of widely expected macro-adjustments, where analysts expect a brief rally in the sectors that play on macro-theme. Over the medium term, the market is likely to remain range-bound until clarity emerges on external funding.

Cement dispatches were reported at 4.5million tons for October 2018, up 7.4%YoY with exports showcasing exuberant growth (38.9%) , amidst 3.8%YoY increase in local demand. Dissecting local dispatches, south demand continues to be robust with an increase of 31.9%YoY which analysts believe is driven more by the resumption of work on private infrastructure projects as political uncertainty evaporates whereas North demand remained stable. On a sequential basis, local dispatches recovered after a dismal September, recording growth of 26.9%, which we believe is due to the seasonal factors (historically dispatches begin to pick up in 2Q).

Export growth has taken a pause to normalize after recording an average MoM growth of 22.1% in the 1QFY19, though improving significantly on YoY basis up 39.0% driven by southern players exploring new markets to reduce risks of supply glut in the region. Overall, cement dispatches for 4MFY18 were recorded at 15.3mn tons, up 5.3%YoY where exports take the lead with a growth of 39%YoY. Coal prices have corrected by 8.8%, peaking US$102.25 in the first week of October 2018 which is on the back of excess supply and muted Chinese demand as many firms reached the government-imposed import quota for the year.


Investor concerns over slowing economic momentum in China, due to a trade war with the US, will likely put further downward pressure on prices. Additionally, gradual shift towards cleaner energy would also weigh on coal demand over the coming year where cost of emitting carbon dioxide is set to double in Europe and is forecast to jump in China, which is introducing an emissions trading market. However, lack of investment in new mining facilities – as new coal plants come online in Asia and the Middle East – should provide some support to prices. For the local players, correction in coal prices amidst rupee depreciation and reduced pass-on ability at the back of potential slowdown in local demand should provide cushion for the cement players.

With the commencement of winter season, the slowdown in construction activity is expected, while PSDP disbursements have also lagged behind with only 13.5% of PSDP being disbursed as compared to 19.0% in the previous year. The economic climate and fiscal tightening are expected to keep pressure on volumes in the medium term as well where we expect volumes to remain subdued for FY19. Though South has outshined in terms of local growth so far, but it is the exports which will continue to be the saving grace for players in South as it contributes towards keeping the market in balance.

On the other hand, a significant slowdown in local demand in the North is expected to continue as construction of big ticket projects and housing construction suffering a major hit has kept the region’s growth in check and is expected to continue to do so. Coupled with limited opportunities for exports, the slowdown in growth puts the North base players in a tight spot where analysts highlight a risk of pressure on prices if growth continues to be negative in the medium term.

NFDC recorded October 2018 fertilizer offtake at 1.11million tons, up 49%MoM comprising of 465,000 tons urea, 521,000 tons DAP, 47,000 tons NP and 35,000tons CAN. The commencement of Rabi season buying was instrumental in pushing total fertilizer demand up by 21%YoY. With buying activity in full swing producers have kept production levels higher, Urea supply rising 20%MoM to 559,000 tons, owing largely to 75,000 cumulative production increases by Agritech and Fatimafert. Cumulative 10MCY18 fertilizer industry offtake reached 7.5million tons, depicting a general inertia in industry offtake and nutrient composition as in an environment of rampant price hikes.

Inventory levels were significantly lower than slightly oversupplied levels. Recent slate of ECC approvals for import of Urea should put to rest concerns of under supplied markets in peak Rabi season demand. Fertilizer sector enters peak demand season with urea prices at a discount of 37% to international urea prices and inventory of 212,000 tons. Analysts expect Status Quo as, 1) local urea prices expected to remain stable with cost push factors only being passed on, following government’s focus of curbing inflation in agriculture input prices, and 2) resumption of manufacturing by LNG based players unlikely to create an excess supply situation in the absence of import of urea.

Check Also

World Stock Markets updates  

World Stock Markets

US stocks rise; S&P, Nasdaq post best weeks in 7 years Wall Street rose on …

Leave a Reply