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PAKISTAN WEEKLY REVIEW.

WEEKLY COMPARISON

###CURRENT###PREVIOUS###CHANGE %

###31-DEC-10###24-DEC-10

KSE STATISTICS

KSE100 index###12,022###11,858###1.4%

Avg. Volume (mn sh)###116###100###15.6%

Avg. Investment (PkR mn)###5,266###4,819###9.3%

MARKET PERFORMERS (KSE-30)

SYMBOL###CURRENT###PREVIOUS###CHANGE %

###PRICE###PRICE

National Bank Ltd.###76.82###72.05###6.6%

Habib Bank Ltd.###121.94###116.41###4.8%

United Bank Ltd.###68.23###65.28###4.5%

Arif Habib CorpSD###24.89###23.83###4.4%

Bank Alfalah Ltd.###11.21###10.74###4.4%

Attock Refinery Ltd.###124.68###119.56###4.3%

Nishat Mills Ltd.###64.17###61.70###4.0%

Fauji Fertilizer Co.###125.86###121.39###3.7%

Bank Al-Habib Ltd.###36.26###35.12###3.2%

Attock Petroleum Ltd.###334.52###327.94###2.0%

Source: KSE Website, Alfalah Securities Research

KSE-100 Index closed at 12,022 up 1.4% over the week. Average Daily Volume during this week stood at 116 mn shares as compared to 100 mn shares last week. On daily closing basis, index touched a high of 12,031 and a low of 11,848.

ECONOMY: PAKISTAN RECEIVED USD 633 MN OF CSF

Pakistan has received USD 633 mn as part of the Coalition Support Fund (CSF) from US. The fund would be utilized to meet the country's budgetary and military needs. An amount of USD 1.270 bn is still payable to Pakistan under the CSF. This amount has raised the Pakistan's total reserves above USD 17 bn and would also help to keep the currency stable.

DOMESTIC DEBT and LIABILITIES SURGED IN 5MFY11

The outstanding domestic debt and liabilities have surged by 8.2% or PkR 403 bn during 5MFY11 at a record level of PkR 5,296 bn. The floating debt increased by PkR 364 bn to PkR 2.76 trn against PkR 2.39 trn in June 2010, while unfunded debt rose by PkR 56.1 bn to PkR 1.51 trn. The continued govt. borrowing has created difficulties for the central bank in containing inflation, which brought in justification for tight monetary policy stance and has also restricted industrial growth in the form of crowding out effect. The govt. on the other hand is making all out efforts to increase revenue side so as to lower its dependence on the borrowing, however, the success has not been profound.

OIL and GAS SECTOR: OMCS REQUEST ON MARGINS TURNED DOWN

Govt. has turned down the request of the Oil Marketing Companies to withdraw the decision of fixed margins on petroleum products. The decision of fixed margins was implemented in the light of Judicial Commission Report; therefore the decision could not be reverted. The margins of OMCs and dealers of 3.5% and 4% resp. were replaced with fixed rupee margin which is PkR1.5/liter on petrol, PkR1.72 on HOBC, PkR 1.58 on kerosene and PkR1.61 on diesel for OMCs.

Moreover, the new oil pricing mechanism also approved controlled deregulation of IFEM under which freight charges will vary from one destination to another. The fixing of margins would limit the profitability of the OMCs as international petroleum prices depicting a rising trend.

BANKING SECTOR: BANKISLAMI TO ACQUIRE CITIBANK PAKISTAN'S HOUSE FINANCING PORTFOLIO

BankIslami has announced to acquire Citibank Pakistan's House Financing portfolio amounting to PkR 953 mn. This acquisition would bring in growth in this segment for BankIslami and would provide avenue for the deployment of liquidity. BankIslami holds equity of PkR 4,727 mn and total Assets worth of PkR 40,108.44 mn on its balance sheet as at Sept. 30, 2010. The banks posted improvement in 3Q CY10 profitability with profit after tax of PkR 17.7 mn (EPS: PkR 0.034) as against after tax loss of PkR 150.15 mn (LPS: PkR: 0.284) last year. The stock is currently trading at PkR 3.30 and is relatively illiquid.

AUTO SECTOR: INDUS HAS REDUCED THE CAR PRICES

Indus Motor Company has reduced the prices of Toyota Corolla XLI and GLI by PkR 17,000 followed by PkR 35,000-40,000 on Altis and PkR 15,000 on Daihatsu Cuore. The price cut was done on the basis of the advancement in localization of engine assembly and phase-II operation of the press shop, which would lead to low cost of production and improved efficiency.

Therefore, we believe this measure would raise sales with lower margins for the company. The impact on margins due to price cut would be offset partially by higher localization benefits. Corolla, the premium product for Indus Motors continues to be in the driving seat for the company's profitability despite economic slow down, floods and sharp decline in net auto loans.

DECISION TO EXTEND LIMIT OF USED CARS' IMPORTS REVERSED

Ministry of Commerce has reportedly withdrawn the SRO related to relaxation in age limit of used cars' imports from 3 years to 5 years under personal baggage, gift and transfer of residence schemes. The extension in age limit had raised competition for the local assemblers while its repercussions on the external front were also very obvious. The economic managers while focusing on lowering imports were contradicted with this decision wherein making room for higher imports of luxury items. Local assemblers were already having difficulty in maintaining their sales numbers would have had to take a hit on the margins to compete with imported cars. The reversal of this decision bodes well for the local cars manufacturers.

CHANGES IN AUTO SECTOR POLICY UNDER CONSIDERATION

There is another proposal under consideration by the govt. to encourage new entrants by relaxing the policy like removing minimum global production of 100,000 units. This, if approved, would be done to attract new investment and expand production while intensifying competition among local assemblers. Other incentives may include lowering of CKD duty, tax holidays, and subsidized land etc.

We believe that there is a need to protect the local car industry. Though auto industry accounts for net outflow of foreign exchange however the value addition on imported parts and employment generated by it can't be overlooked. The auto industry however needs to be innovative and competitive where increased localization of parts is the main way to protect the cost sheet from the continuing local currency depreciation.

MARKET OUTLOOK:

Market is expected to witness fresh buying spree on the start of the new year where investor are expected to re-organize their portfolios. The tense political situation prevailing in the country, however, is likely to dampen the investors' interest. The oil sector is expected to remain in the limelight as international crude oil prices continues with the rising trend.
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Publication:Pakistan & Gulf Economist
Geographic Code:9PAKI
Date:Jan 9, 2011
Words:1107
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