During the week ending November 6, 2015 the benchmark Karachi Stock Exchange’s KSE-100 index closed almost flat at 34,427 levels. The market mostly remained under the influence of global oil prices fueling gains in Oil & Gas sector. Average daily trading volume during the week rose to 187 million shares as compared to 165 million shares a week ago.
Major news flows affecting the market included: 1) GoP increased prices of petrol and high speed diesel effective 1st November, 2) Ministry of Petroleum & Natural Resource announced diversion of gas to Guddu power plant from Engro Fertilizers to increase electricity production from the power plant beginning next month, 3) Urea sales for September 2015 were reported at 193,000 tons depicting 54%YoY decline while DAP nosedived 92%YoY to 6,800 tons, 4) Domestic cement sales during 4MFY16 increased 14.38%YoY while exports plunged by 27%YoY, 5) FFC announced to invest in a joint venture for setting up a new fertilizer plant in Tanzania and 6) Vital seeking 15%-20% stake in HASCOL.
Scrips that led the bourse included HASCOL, PSO, KEL, MLCF and SSGC. The laggards were INDU, ENGRO, EPCL and LOTCHEM. Foreign interest showed improvement where net foreign outflows for the week at US$5.11 million recorded considerable decrease as compared to net sell of US$20.15 million in the prior week.
Analysts believe that development in oil prices and foreign investment is likely to continue affecting the market next week. The release of Monetary Policy Statement scheduled for next week will be a highlight, where expectations remain divided due to October inflation likely to be recorded marginally below expectation. However, analysts expect State Bank of Pakistan to maintain the status quo on currency weakness and anticipated uptick in inflation next year onwards. Moreover, MSCI’s semiannual review during the current month is also scheduled next week, where any changes in index composition can impact the market accordingly.
The Government of Pakistan (GoP) successfully concluded the ninth staff‐level review under the EFF agreement with Pakistan qualifying for release of another US$502 million installment, contingent on Board’s approval next month. As expected, Pakistan missed on targets set for SBP’s net domestic assets (NDA) as well as fiscal deficit and revenue collection.
While analysts await release of detailed review report next month, preliminary estimates indicate revenue collection shortfall to be at Rs40 billion (FBR 1QFY16 provisional collection at Rs600 billion) and fiscal deficit exceeding the target by Rs22 billion. Three structural benchmarks relating to the implementation of SBP’s IRC and tax collection enhancement were met, whereas the last one, pertaining to amendment in the SBP Act for greater autonomy is likely to be passed in due course.
Moreover, the IMF maintained a positive outlook on economic prospects with FY16 GDP growth forecast of 4.5%. However, it also highlighted risks to the same emanating from deceleration in private sector credit growth recorded for September at 6.2%YoY) and exports weakness. The 1QFY16 exports have declined 14.8%YoY on commodity slump and lower cost competiveness.
According to the details released by State Bank of Pakistan on November 5, 2015, the country’s total foreign exchange reserves were reported at US$19,811.6 million on 30th October2015. During the week under review reserves held by the central bank decreased by US$97 million to US$14,821 million, compared to US$14,918 million a week ago. The break-up of the foreign reserves was: foreign reserves held by the central bank were stated at US$14,820.8 million and net foreign reserves held by the commercial banks were reported at US$4,990.8 million.
Indus Motor Company (INDU) held its analyst briefing during this past week to discuss 1QFY16 earnings, industry dynamics and outlook. To recall, the OEM posted 1QFY16 profit after tax of Rs2.9 billion (EPS: Rs37.33) increase backed by strong sales growth and a favorable currency impact (depreciating JPY against PKR). Key takeaways from the briefing included: 1) earnings in 2QFY16 (Oct-Dec 2015) are likely to be soften on account of seasonal weakness in auto sales and possible margin erosion due to the recent weakness in the PKR/US$ parity, 2) demand for Corolla remains strong with a two months lead times for its 1,300CC variants (Xli and GLi) ‐ contributing 65 ‐ 70% of total Corolla sales volume mix, 3) pricing decisions are expected to remain strategic in nature, where a penetration strategy is currently in play, 4) paint shop operations remain the major bottleneck in production with the capacity expansion now requiring a major CAPEX (not planned for in the near term) and 5) a 30% of orders are financed through auto loans while room exists for further auto financed sales amidst the current lower interest rate environment.