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STOCK MARKET AT A GLANCE.

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MARKET REVIEW

The momentum found last week could not sustain as the KSE-100 index fell 0.8% WoW. Newsflow on the political front dragged sentiment upon MQM's resignation from the Parliament. ADTO dipped by 10% WoW to clock in at 120mn shares. However, the average daily value traded rose 13% to US$333mn. FIPI for the week fell to US$0.9mn from US$4.9mn last week.

The week was marked largely by better-than-expected results of some big chips like MCB, APL. However, the below expected earnings announcement by POL raised some concerns, though higher dividend came in as a positive surprise. The auto policy approval stalled yet again as the ECC deferred its decision until further deliberations with stakeholders and incorporation of its recommendations. Though granular details are not available, uncertainty on regulatory duties remains and any potential changes in import policy of new or old cars could affect existing players.

Progress on macro reforms front remained evident as the government managed to take key decisions: (1) pacing up the bidding for strategic sale of its 1.76mn shares in National Power Construction Company (NPCC) bought by a Saudi-based company for PRs2.5bn, (2) National Assembly Standing Committee on Finance approved SBP (Amendment) Bill establishing an independent monetary policy committee; the proposed bill is now to be forwarded to the Parliament for approval which is a key IMF condition; (3) plan to approve multi-year tariff for Discos (NEPRA scheduled to hear the petitions of Discos on Aug 18, 2015), and (4) discussion to raise minimum threshold for WHT on bank transactions to PRs100,000 to appease public opposition.

Among key data points on the macro front, remittances for the month of Jul-15 came in at US$1.66bn (up 0.8% YoY), declining from an all-time high level of US$1.8bn last month. Trade deficit in Jul-15, on the other hand, while down 25% MoM, increased by 34% YoY to US$1.77bn due to 17% drop in exports. Chinese Yuan fell almost 4% percent during the week. As China forms a large chunk of global demand for commodities, commodity prices continued its downturn. Even though the effect of current depreciation is minimal, the market reacted to this, possibly fearing shrinkage in Chinese imports and thus an increase in the global supply overhang, causing downward pressure on prices (a positive for commodity consuming companies: PAEL, Cements).

OUTLOOK

The political climate and developments will largely drive market sentiments next week. As the result season is underway, announcements from OMCs, cement , IPPs, and banks are the most anticipated. The market will also be eyeing movements in commodity prices on the back Chinese Yuan. Our top picks are POL, PPL, ENGRO, EFERT, FATIMA, UBL, HUBC, LUCK, KOHC, ICI, PAEL and DGKC.

NEWS THIS WEEK

POWER SECTOR RECEIVABLES INCREASE BY 23.5%

Reportedly, power sector receivables have jumped 24% YoY to PRs633bn as of Jun-15 from PRs513bn in Jun-14. The full impact of the recent measures undertaken by the government, namely tariff surcharges, has not been realized, in our view.

TRADE DEFICIT EXPANDS BY 34% YOY

Latest data for July revealed a 17% YoY drop in exports to US$1.6bn, which together with a slight 4% YoY increase in imports resulted in trade deficit increasing by 34% YoY to US$1.77bn. On a MoM basis, the trade deficit is down 25% on the back of 21% and 23% decline in exports and imports respectively.

GOVT GEARS UP FOR MEETING IMF CONDITIONS

As expected, the government has agreed to ensure a set of policy measures to enable convening of the meeting of the executive board of the International Monetary Fund (IMF) by mid-September, for approval of $502 million disbursement.

WORK ON FOUR CPEC PROJECTS TO START THIS YEAR

According to the Planning and Development Minister Ahsan Iqbal, the bidding process for four early harvest projects under the China Pakistan Economic Corridor (CPEC) has begun and work on them is targeted to commence by end of 2015.

POWER SECTOR: ECC APPROVES SOVEREIGN GUARANTEE

Reportedly, the issuance of a Sovereign Guarantee of PRs7.487bn syndicated term finance facility for the power sector was recently approved by the Economic Co-ordination Committee of the Cabinet (ECC), together with an extension in the export of wheat and flour till September 30, 2015; exemption in 5% sales tax on wheat bran was also approved. The ECC also deferred the approval of the 5 year Automotive Policy and of the Telecommunications Policy, amongst other things. They have proposed changes in the policies; approval will be contingent on their incorporation.

THIS WEEK'S TOP STORIES

MONDAY, AUG 10, 2015 - IMF'S 8TH REVIEW NOTES PROGRESS ON REFORMS; PRIOR CONDITIONS WILL BE KEY

- As expected, agreement of the IMF staff on the economic performance concluded successfully with largely positive comments. The Finance Minister's comment on increase in inflation merely points towards expected uptick from low of 1.8% in July and is unlikely to affect government's forecast of 6% (KASB: 5.5-6%).

- e await detailed Letter of Intent and Memorandum of Understanding which is likely to shed light on prior conditions for approval of ninth tranche.

- our areas that remain crucial to track and may be addressed in the near term include: (1) circular debt ceiling (2) potential revenue shortfall (3) fresh timeline for privatization and (4) gas tariff hike (15-20% hike expected).

SARAH MAZHER (Sarah.kamran@kasbsec.com)

MOHAMMAD FAWAD KHAN (Fawad.khan@kasbsec.com)

TUESDAY, AUG 11, 2015 - NRL - EARNINGS AT AN INFLECTION POINT, THIS TIME FOR THE WRONG REASON; U/P

- We believe the sweet spot in margins and relative stability in earnings have unexpectedly proved to be transitory due to steep weakness in margins and prospect of heavy inventory losses in 1Q.

- However, market has failed to appreciate the future risks, mainly due to expectation of strong 4Q earnings/dividend and optimism on continuation of strong 4Q GRM, leading us to downgrade the refinery sector to U/W and cut our rating on NRL to U/P from Buy.

- We have trimmed our estimates for NRL by 3-28% over 2016-2018 based on weak margin forecast and believe 1Q earnings will likely substantiate our thesis.

MOHAMMAD FAWAD KHAN (Fawad.khan@kasbsec.com)

MUHAMMAD SAAD ALI (Saad.ali@kasbsec.com)

WEDNESDAY, AUG 12, 2015 - SECTOR FORTUNES TO STABILIZE AHEAD

- Auto sales declined by 11% MoM in Jul-15, primarily led by stabilization of high demand in 4QFY15. PSMC sales fared better with a 3% MoM decline.

- We see upside potential in 4QFY15 earnings from Indus Motors, given impressive uptick in gross margins seen in PSMC and HCAR; though expect margins to stabilize in FY16.

- Auto policy which is to be considered by ECC today may lack material near term upside in case of price cut, in our view.

SARAH MAZHER (Sarah.kamran@kasbsec.com)

THURSDAY, AUG 13, 2015 - POLITICS: 4TH LARGEST PARTY RESIGNS; NO THREAT SEEN TO POLITICAL SET-UP

- MQM - the 4th largest political party - has decided to resign from all three levels of the Parliament; we do not see any material threat to current political set-up.

- The resignation, from MQM's perspective, is driven by the perceived partiality and the one-sided nature of the ongoing security operations in Karachi.

- There are low chances of acceptance of resignations, thus reconciliation with MQM is likely; security operations expected to continue, in our view.

MOHAMMAD FAWAD KHAN (Fawad.khan@kasbsec.com)

STOCK MARKET SYNOPSIS

###LAST WEEK###THIS WEEK###% CHANGE

###Mkt. Cap (US$bn)###76.8###76.2###-0.7%

Avg. Dly T/O (mn. shares)###295.4###333.2###12.8%

###Avg. Dly T/O (US$ mn.)###132.8###120.1###-9.6%

###No. of Trading Sessions###5.0###4.0###-

###KSE 100 Index###36,222.6###35,937.3###-0.8%

###KSE ALL Share Index###25,236.0###25,082.0###-0.6%
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Publication:Pakistan & Gulf Economist
Date:Aug 23, 2015
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