Karachi, January 27, 2023 (PPI-OT): Weekly Review
With a controlled hike in the policy rate, along with some positive newsflow regarding the start of negotiations between the Govt. and the IMF, the market witnessed a rally of ~2,400pts from Tuesday to Thursday. This culminated to the KSE-100 index gaining 5.3%WoW to close at 40,451pts at the end of the week. Hence, average volumes in the market spiked significantly by 76.2%WoW, up to 252mn shares. During the week, the Govt. decided to let go of the artificially controlled interbank exchange rate, with the rupee subsequently plunging downwards from a US$/PkR parity of 230 to 263, losing 12.5% on a WoW basis.
Major news flows during the week were; i) SBP-held FX reserves dropped to US$3.7bn due to external debt repayments, ii) General elections in October, says minister, iii) Country needs to repay US$3bn debt in five months: SBP, iv) Consignments stuck at ports: Banks told to give one-time facilitation to importers, v) Currency dealers remove cap on dollar-rupee exchange rate, vi) PkR300bn taxation measures through mini-budget on the way, and lastly vii) IMF team to arrive to Pakistan on 31st January.
Sector-wise, the top performing sectors were; i) Miscellaneous (+9.9%WoW), ii) Refinery (+8.7%WoW), iii) E and Ps (+7.0%WoW), iv) Vanaspati and Allied (+6.7%WoW), and v) Cement (+6.7%WoW), while the least favourite sectors were; i) REITs (-2.7%WoW), ii) Pharmaceuticals (-2.2%WoW), iii) Textile Weaving (-1.9%WoW), iv) Woolen (-1.4%WoW), v) and Automobile parts and accessories (-1.4%WoW). Stock-wise, top performers were; i) KTML (+26.2%WoW), ii) HBL (+23.8%WoW), iii) SML (+23.6%WoW), iv) KOHC (+19.3%WoW), and v) CHCC (+16.9%WoW), while laggards were; i) HINOON (-5.6%WoW), ii) THALL (-5.4%WoW), iii) INDU (-4.6%WoW), iv) ABOT (-3.9%WoW), and v) SYS (-3.3%WoW). Flow-wise, Insurance Companies topped the net sellers, offloading US$8.8mn followed by Companies (US$3.9mn), Mutual funds (US$3.7mn) and NBFC (US$0.0mn). On the buying side; Banks, Individuals, Brokers, Foreigners and Other Organizations posted buying of US$5.0mn, US$4.1mn, US$3.8mn, US$2.8mn and US$0.7mn respectively.
Outlook
Incoming news regarding developments on the IMF front was bound to invoke a short-term rally, although the longer the agreement takes the more uncertainty will creep back in, keeping investors away. The local currency has dropped significantly after it was left to market forces, depreciating to ~PkR263/USD at the time of writing while FX reserves stand at critical levels (an import cover of merely 3 weeks). Inflation is expected to remain persistent, while we expect another rate hike of a minimum 100bps in FY23. We retain our liking for the IT sector in the current backdrop along with E and Ps, and advocate for gradual accumulation in fundamental scrips with a longer term focus, but investors should remain wary of any developments (or lack thereof) on the macro-economic front.