Karachi, August 02, 2021 (PPI-OT): Pakistan Strategy: Jul’21 – Market review and Outlook

Jul’21 turned out to be the second consecutive month of lackluster performance, with KSE-100 index down 0.6%MoM to close at 47,055pts. Average volume stood lower at 460mn shares compared to 913mn shares in the previous month and CYTD avg. volume of 591mn shares.

Investors remained on the sidelines eyeing i) rising COVID cases in the country with the epicenter being Karachi (Country wide positivity rate crossed 8% mark lately with Karachi recording +20% positivity rate), ii) political uncertainty surrounding settlement in Afghanistan, and iii) macro risks amidst lack of clarity on the course of measures under IMF program.

Flow wise, excluding strategic sale in BYCO amounting to ~US$27.4mn, foreign selling stood at US$1.2mn in Jul’21 with positions switched from Food and Personal Care segment (outflow: US$2.4mn) and Commercial Banks (outflow: US$1.8mn), to Cements (inflow: US$2.4mn), and Oil and Gas sector (c. inflow: US$3.6mn).

Market’s direction in the near term is likely to be dependent on COVID trend, demonstration by Pakistan authorities on achieving IMF mandated targets, and external account numbers release (CA expected to normalize in Jul’21), and earnings season (Upstream textile players, and Midstream and Downstream oil players to look out for).

In the medium run, we believe Pakistan macro story is still intact and hence any short term corrections should be taken as an opportunity to accumulate where our preference is for thematic plays including Cements, Steel and Construction-Allied. We also like Textiles where recent currency devaluation and strong exports outlook bodes well for profitability growth going forward.